These daily financial tips are designed to be short ideas covering different aspects of family and business finances. They are short pieces intended to provide information to enable individuals, families and businesses to make informed financial decisions. Not all tips will apply to every situation, but over the course of a year, most financial topics will be covered. Check in regularly and share with friends and associates.
Every person/household struggles making ends meet and budgeting. While every situation is different, a general rule of thumb to balance daily household expenses and other priorities such as savings, etc is to allocate 70% of net income to living expenses (mortgage, rent, loans, food, etc), 20% to savings and 10% to investing. This 70/20/10 rule is also a great way to teach children and young adults about money (ie. Allocating allowance, part time job money, etc) and to develop good savings/spending/budgeting habits (I will discuss child money strategies in future posts) at an early age. The 70/20/10 allocation may be modified as circumstances change (ie. As one gets older and pays off a mortgage, may allocate a greater portion to savings and investing).
Daily expenses should not include allocations for discretionary items like vacations, gifts etc. Many people may be confused on differentiating between saving and investing. While they are similar, there are key differences. Savings is setting monies aside for shorter term objectives. Items like vacations, gifts (ie Xmas/birthdays/anniversaries) etc. Usually these are monies that are being allocated to be spent within 12 – 36 months. Investing on the other hand is setting monies aside in longer term investments for longer term needs, such as retirement. What investment instruments (ie bank accounts, GICS, mutual funds, etc) are used will vary depending on whether monies are being used for savings or investment and every individual’s different objectives, family situation and risk tolerance. The nature of different investment vehicles will be covered in future posts.
Having a plan on how to budget your pay cheques and take home pay/money will help avoid falling into bad habits or bad money management. Studies today indicate most Canadians don’t have at least one month’s of daily living expenses set aside for emergencies (ie injury, job loss, sickness). It is recommended today to have 6 – 9 months of daily living expenses set aside for emergencies.
If your current situation is not similar to above, it would be a good practice to sit down and review your current situation and expenses to assess what adjustments can be made to bring future spending and savings into better alignment. Taking immediate steps will help perpetuating past habits and providing for the future. There are many online budgeting websites that can provide great savings and budgeting ideas. Keep coming back here for more daily financial tips.