Personal Financial Management: An Overview of Free Tools and Resources Available to Support You

Personal financial management is a term that broadly covers anything related to money management, including things like saving, budgeting, investing, spending, insurance, retirement, credit, and more. Having a better understanding of personal financial management can help you lead a financially independent and lower-stress life while achieving the goals that are important to you. The reality is that anyone can be financially vulnerable, regardless of income, background, or education. Because the world we live in is complex and challenging, it’s important to learn the basics of personal financial management so that you can more confidently face challenging times in an increasingly digital world.

In today’s article, we will explore the basics of personal financial management and some of the free tools and resources available to support you at both the Financial Consumer Agency of Canada (FCAC) and Canada Deposit Insurance Corporation (CDIC). An ideal way to start is with the FCAC webpage: Managing your money in challenging times which offers timely resources at: https://www.canada.ca/en/financial-consumer-agency/services/covid-19-managing-financial-health.html.?Areas of personal financial management that you might need to focus on include the following:

Know Your Income

The first and one of the most important steps of financial management is to know your income. It may seem rather basic, but you would be surprised to learn that many people do not actually know what they make each month, after taxes and any other deductions. It’s important to calculate all your income, which can come from a variety of sources, like salary, profits, wages, pensions, dividends, and more. Three of the main types of income are?earned, passive and portfolio.

·??????Earned income includes wages, salary, tips and commissions.

·??????Passive, or unearned, income comes from things like rental properties, royalties and limited partnerships.

·??????Portfolio, or investment, income includes interest, dividends and capital gains on investments.

Knowing your income is the foundation of personal financial management because it determines how much you can spend, save, invest, borrow, etc.

Organize Your Finances

Another crucial step in personal financial management is to organize your finances. As cumbersome as it may sometimes feel, it’s imperative that you track everything, including bank accounts, credit cards, loans, mortgages, investment and retirement accounts, car loans, etc.?You should also track how much your monthly payments are and when they are due so that you can always make your payments on time.

It may take some work the first time you do this, but it is well worth the effort. Once you gather all this important information in one place, you can spend less time getting organized and more time managing your personal financial situation. You are not alone if you find this overwhelming, but there are many different online tools and resources to help you. FCAC has some great information on money and finances to get you started at:?https://www.canada.ca/en/services/finance.html?utm_campaign=not-applicable&utm_source=money_vanity-url&utm_medium=vanity-url. The good news is that, once you do this the first time, it is generally quite easy to keep it up to date!

Develop a Budget

Budgeting often causes us to run the other way. While it definitely requires some effort initially, having a budget will enable you to be more confident and secure in your ability to manage your everyday finances, cope with unexpected costs and plan for the future. It’s important to take an honest look at your finances. This can sometimes be scary, particularly because we don’t always want to know the outcome, but it is a vital step in developing an achievable budget and achieving your financial goals. Avoiding doing this may lead to bigger consequences down the road.

Consider the 50/30/20 budget framework, in which 50% of your income goes towards essentials (like rent/mortgage, food, utilities and transportation, for example), 30% goes towards your wants (like clothes, entertainment and travel), and 20% of your income goes towards savings, paying off debt and building an emergency fund. By tracking your spending on a regular basis, you have an accurate picture of where your money is going – and where you might like it to go instead. Remember that there is always room for improvement. As you track, you should also be ready to adjust. If your budget is really unbalanced, you may need to change some of your wants or make trade-offs to keep your budget on track.

Check out FCAC’s Budget Planner at https://itools-ioutils.fcac-acfc.gc.ca/BP-PB/budget-planner, which helps you create a customized budget in three easy steps. You can even save and update your budget online. It doesn’t get much easier than that!?

Spend Less Than You Earn to Achieve Your Financial Goals

It’s important to remember that no budget is the same and nor should it be. Your budget should be built with your needs, wants and values in mind, thus giving you the highest likelihood of actually following it! Always remember the basic principle of not spending more than you earn. And, as always, take the time to celebrate your financial successes, both big and small, whether that means successfully following your budget, achieving a savings goal or reducing your overall expenses.

Spending less than you earn is?one of the most important financial concepts to understand and live by. If you don't live on less than you earn, you will never get ahead and achieve your financial goals. Indeed, spending less than you earn is the secret to building wealth over time. It may take some initial life changes, but the longer you do it, the easier it is to continue doing it. If you need help establishing clear financial goals, try out the FCAC Financial Goal Calculator at https://itools-ioutils.fcac-acfc.gc.ca/FGC-COF/home-accueil-eng.aspx, which is designed to help you manage your debt and savings goals.

If buying a home is one of your financial goals, FCAC offers a free Mortgage Qualifier Tool at https://itools-ioutils.fcac-acfc.gc.ca/MQ-HQ/MQ-EAPH-eng.aspx, a tool to help you find out if you can qualify for a mortgage based on the property you want, your income and your expenses. Or check out the FCAC Mortgage Calculator at https://itools-ioutils.fcac-acfc.gc.ca/MC-CH/MC-CH-eng.aspx, a tool to help calculate your mortgage payment schedule and how to save money by making pre-payments.

Focus on Savings

Even if you don’t have much left after making your budget, always ensure you set aside money for savings and emergencies and for future needs, like retirement. Another very important step is to start an emergency fund of 3-6 months’ expenses which provides a financial cushion in times of need without having to rely on credit cards or high-interest loans, for example. Having an emergency fund is crucial because it can help you avoid borrowing more if you have debt. Creating a contingency fund, or safety net, can also help improve your financial security.

Of course, when it comes to saving, which you typically put in safe investments, like deposits, it’s imperative that you ensure your hard-earned savings are protected.?Find out how deposit insurance works at: https://www.cdic.ca/your-coverage/how-deposit-insurance-works/. Deposit insurance is free and automatic, and protection is based on several deposit categories that keep your money safe throughout your life. To find out ways to ensure that you maximize deposit protection, try out the easy-to-use CDIC Deposit Insurance Calculator at: https://www.cdic.ca/deposit-insurance-calculator/.

Saving IS possible. It requires discipline, consistency and compromise, and sometimes, it requires you to simplify life. Without savings, you can’t accumulate money and achieve your financial goals. It’s imperative to develop good personal financial management habits as early as you can in life in order to help you achieve your financial goals, whether they are to buy a house, travel, support your grandchildren with their education or retire early, for example. Both FCAC and CDIC help promote financial confidence and resiliency by arming you with tools to tackle many key elements of financial management. Whether you need help choosing a bank account or credit card, to find out if you qualify for a mortgage, or to see if your financial institution protects your deposits, check out their free tools and resources today.

By looking after the most crucial aspects of financial management, you can help avoid future financial stress and bring yourself one step closer to ensuring that your finances align with your desired future.

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Brought to you by CDIC. CDIC is a federal Crown corporation established in 1967 to protect the savings of Canadians and contribute to financial stability by safeguarding more than $1 trillion in eligible deposits at more than 85 member institutions. As resolution authority, CDIC is responsible for handling the failure of any of our members, from the smallest to the largest. Our members include banks, federally regulated credit unions as well as loan and trust companies. We are funded by premiums paid by member institutions and do not receive public funds to operate.?We have resolved 43 member failures to date, affecting some two million Canadians. No one has lost a dollar of deposits under CDIC protection. To learn more about CDIC, visit https://www.cdic.ca/about-us/