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As Spring arrives, many Canadians are grappling with higher interest rates and inflation, and the possibility of a recession. Recent events in the US banking sector may have further heightened concerns about personal finances. At Financial Literacy Counsel, we believe that organizing your financial affairs can help you weather economic cycles. We’ve asked our in-house financial planning expert, Lewis Chan, with over a decade of experience as a financial advisor, to guide you through this process.

Q: What is my financial house and how can I get it in order?

At FLC, we use the term “financial house” to describe the state of your overall personal finances. It is divided into rooms that help you understand how the different pieces of your financial plan work together to create a strong foundation and manage your risks and assets. 

Before you start organizing your financial house, you need to assess what’s inside. To do this, ask yourself questions in these areas: 

  • Income: Do you have regularly stable or varying income? Do you have more than one source of income? Think of ways to boost your income or enhance job security. Do you have any passive sources of income? How can you generate additional passive income streams? 
  • Expenses: What are your monthly and yearly expenses? Can you identify areas where you can cut costs? Do you have a quick way to check your monthly spending? Consider what’s on your plate, your priorities, and what can be pruned. Are there any said or unsaid expectations when it comes to supporting your partner, children or even parents as they get older? 
  • Savings: Have you saved enough money and created an emergency fund? Do you have any specific savings goals in mind? Are these goals measurable and have a specific time frame to achieve them? 
  • Debts: Do you have outstanding debts, and what are their interest rates and minimum payments?  
  • Investments: What types of investments do you have, and do they match your personal investment strategy?  
  • Insurance: Are you and your family financially protected in case of illness, loss of ability to work, or death?  
  • Financial goals: What are your short-term and long-term goals, and how do you plan to achieve them?  

By asking these questions, you can gain a better understanding of where you currently stand financially and identify areas where you can improve.

It’s like using a map to plan a route: you first need to locate the “you are here” sticker. 

Q: Where should I start and are there any rooms that are higher priority?

Now that you know where you stand financially, it’s time to set your goals. Be specific about what you want to achieve. For a short-term goal, think about a change you can make in a year that you’ll be proud of when you look back. 

To build a strong foundation, prioritize these rooms:

  1. Create a Spending Plan: Compare your expenses to your income to see if you can reduce costs and put the remainder towards your goals. Develop transparency, accountability and a common language around money by reviewing your income and expenses with your partner monthly. We have found that this helps improve communication and strengthen relationships. 
  2. Build an Emergency Fund: Set aside money for unexpected expenses. Aim for 3-6 months of living expenses, accessible through separate savings or a line of credit.  
  3. Work on Debt Reduction: Pay off high-interest debts like credit cards first, then move on to federal student loans. 

Financial planning is a balance between knowing you want to save for the future but wanting to spend it now. By prioritizing these rooms, you can build a solid foundation for your financial house and achieve your goals. 

Q: What are your tips for maintaining a clean house?

After organizing your finances, it’s important to keep them that way. Involve your spouse in the process and use the tips below to help stay accountable. Talk to your Financial Advisor to ensure you’re on track and not missing anything important. 

  • Track your Expenses: Instead of just sticking to a budget, track your expenses to gain deeper insight into your spending habits. If you see areas where you’re overspending, adjust your habits or budget accordingly. For example, I discovered I was spending over $300 on coffee each month, so I started making coffee at home more often. 
  • Automate your Savings: Set up automatic transfers from your paycheck to your savings account, even if it’s just a small amount. Over time, those savings will add up.  
  • Review your Goals Regularly: Check in on your goals 1-2 times per year, or more frequently if there are any significant changes in your life. Maintaining your financial house is easier than having to do a major clean up every few years. Plus, you’ll enjoy the benefits of having your finances organized and under control. 

Q: Any final comments? 

In recent years, we have witnessed events that are beyond our control such as changes in the economy, health conditions, and natural disasters. However, by focusing on what we can control and keeping our finances organized, we are giving ourselves more options and the ability to handle these situations better. Instead of resorting to the only option when an event occurs, we want to empower our community members so they have the ability to make a choice that is best for them. If you’re unsure about the state of your finances, make sure to check in with a financial advisor. 

The comments contained herein are a general discussion of certain issues intended as general information only and should not be relied upon as tax or legal advice. Please obtain independent professional advice, in the context of your particular circumstances. This article was written, designed and produced by Financial Literacy Counsel, a registered trade name with Investia Financial Services Inc., and does not necessarily reflect the opinion of Investia Financial Services Inc. The information contained in this article comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any securities.

Mutual Funds are offered through Investia Financial Services Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments.  Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated.

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