Financial wellness is about more than how much money you have. Your financial well-being includes all of your money habits; from spending and saving to buying and borrowing. Taking stock of your financial wellness can help you set new systems in place, create habits, and build the financial standing you need to reach your goals.
6 Tips to improve financial wellness
Use these tips to perform a financial health check and assess where you are versus where you want to be.
Run the numbers
Getting an accurate measure of your financial health is easier when all of the information is in front of you. Add up any debts you have, run a credit check, and put together an outline of your monthly income, expenses, savings, and occasional costs. Running the numbers can give you a birds-eye view –– so you can step back and see where you’re truly starting from.
Ask good questions
Now that you have a sense of the numbers, check your financial habits with these questions:
- Do you have a clear sense of your budget and financial limits each month, or is your spending emotionally or impulse-driven?
- Are you pleased with your current net worth or financial wellness? If not, what aspects are important for you to see change and why?
- Do you feel that your financial habits (spending, borrowing, investing) are getting you closer to your financial goals? If not, which habits might be hindering financial stability or growth?
- Are you financially prepared for unexpected life events like job loss, illness, or disability?
- If you have a partner who you share finances with, do you both have a clear sense of the financial standing, debts, and goals you have? Are these goals the same?
Envision your ideal financial future
For some people, making enough money for a big yard or a house with a pool is important, and for others financial freedom means a solid cushion of savings or paying off tuition debts. Whatever your situation, financial wellness begins with a clear sense of where you want to end up. If you’re buying a home, consider costs like closing costs, maintenance, repairs, and land transfer taxes in addition to planning for a downpayment. If you’re planning a vacation, consider how much paid time off you have or what the detailed costs of flights and hotels will be.
Build a financial road map
Regardless of where you are in your financial journey, take time to record your financial goals and display them clearly on a bulletin board, desk, or mirror, so you’ll be reminded of what you’re saving and working toward. Your approach to financial health will partly depend on your life stage:
- If you’re establishing a career or entering the housing market, your focus may be on investment, building good credit, earning, and building assets for the future.
- If you’re already a homeowner with an established career, your focus may be on long-term savings, a diverse investment portfolio, and future financial goals for retirement or for your children.
- If you’ve already retired or are in a more mature phase of life, your goal may be centered around protecting the savings you have, minimizing costs, and financial planning for the years following retirement.
Improve your credit score
A credit score is a 3-digit number that offers credit bureaus a sense of how financially responsible you are, and how likely you are to pay your bills on time. Credit scores in Canada range from 300 to 900. To improve your credit score:
- Always make payments on time and prioritize paying off high-interest debt.
- Don’t go over credit limits on credit cards and aim to use 35% or less of your available credit.
- Longstanding accounts show consistency; so avoid moving credit card costs from one card to another. Keeping an older account open –– even if it’s rarely used –– could improve your credit score.
- Avoid frequent credit checks, which can be a red flag for lenders.
- Use a mix of credit sources; combine loans, lines of credit, and credit cards rather than putting all of your credit in one place.
Work with a financial advisor
A financial advisor can support your financial health at any life stage; with insights on building an investment portfolio, estate and tax planning, financial planning, and more. Research shows that Canadians who work with financial advisors are more likely to reach their financial goals and build wealth; in a 15-year study, investors who worked with financial advisors had almost 4 times the assets of those who didn’t.
3 steps to save for a downpayment
If one of your financial goals is to purchase a home, you’re likely saving up for a mortgage downpayment. A downpayment is important because it impacts your interest payments, the monthly mortgage payments you’ll owe, and the price of the home you’re able to buy.
1. Calculate how much your downpayment will be.
In Canada, the downpayment percentage depends on the home price:
- Properties valued at $500,000 or less require a downpayment of 5% or more.
- Properties valued at $500,000 – $1 million require a downpayment of 5% on the first $500,000 or the house value, and 10% for the portion of the house price above $500,000.
- Properties valued over $1 million require a 20% downpayment.
Keep in mind that a downpayment of less than 20% requires mortgage default insurance. Online calculators can help you calculate the downpayment you may need.
2. Create a savings plan for your downpayment.
Using your monthly budget and savings goals, establish how much money you could comfortably put aside every month in order to reach your savings goals, and how long it would take for you to save the amount needed to purchase the kind of home you want to buy. Make sure you’re prioritizing paying off high-interest debts and ensuring you still have enough room to maintain your lifestyle.
3. Consider other streams of income or revenue to help you reach your goals.
- In Canada, first-time homebuyers can borrow $35,000 tax free from their Register Retirement Savings Plans (RRSPs) and pay back the funds within a 15-year period.
- Tax-Free Savings (TFSA) accounts are a useful tool if you’re saving up for a downpayment because you can withdraw funds from it anytime without tax implications.
- If you’re concerned about mortgage payments, look into government programs like the First-Time Home Buyer Incentive to cut down on monthly mortgage payments.
Get support for your homebuying journey
Homebuying can be an overwhelming process. OJO is here to provide support and guidance at every step of the way. For a new and differentiated homebuying experience, sign up at OJO.ca.
Find more information on how to buy a home, how to sell your home, and mortgage and finance tips, see our Home Journey How-To’s or sign up at OJO.ca.