This is my first post on Matcha Finance. It’s also the first post in the 3-post series – Get Your Finances In Order.
With your finances in order, you’ll no longer feel distressed and unease about the topic. Besides, you’ll no longer bang your head against the wall wondering where your money has gone now and then. Your saving goals will be fulfilled without having to live on the extreme frugality. Your wealth will accumulate effortlessly.
Financial freedom – the ultimate reward of getting your finances in order
At a younger age, we work hard to earn money building a financial nest for ourselves and the family. As we get older, that financial nest should gradually build and fortify itself to take care of us. That is financial freedom, an ultimate dream of many working people.
To know where you stand financially today and keep you stay on track of your financial freedom destination, start by getting your finances in order now!
What I did to get my finances in order
1 – Decluttering. This is what I think people should do to kick start their financial journey. We can’t get our finances in a good shape if our financial life is cluttered with barely checked accounts, neglected products, and surprising charges. Just as with your home, you’ll probably want to get rid of overcrowded useless stuff before you can do any home decoration.
2 – Building the 3 pillars of self-sustaining wealth. These 3 pillars are: simple realistic budgeting, automated saving, and low-cost passive investing. My 3 pillars are running in an auto-pilot mode.
3 – Optimizing and Maintaining. We live in a fast changing world where all things keep moving. Products, services, and even financial mentalities come and go. A successful personal finance setup requires to be optimized and maintained to keep up with changes.
Financial decluttering redefined
With an inviting financial system and expanding technology, signing up for a financial product has never been quicker and easier. Via a phone call or an online channel, opening a financial account takes only a little longer than making a cup of tea plus firing up a Netflix movie.
Don’t get me wrong. There’s no problem with having multiple accounts. It’s only bad when you abandon them or get charged by them unwillingly.
In my view of financial decluttering, you don’t have to cut down the number of financial products to the other extreme. Although simplicity is always recommended, if you’re organized and have a solid reason for keeping all of your products, be my guest! The key thing is not to get rid (of) but to get organized.
If you clean up your finances properly, you’ll thank yourself a bunch for cutting unnecessary expenses that you don’t even realize you’re paying. A well-organized personal finance system helps save tons of your time, and time is money too. It also secures your savings. If you set it up wisely, it may even reward you money for spending money, isn’t that awesome?
Now get your broom and mop. Let’s do some serious cleaning!
You’re gonna walk with me through a series of self assessment questions. Give yourself 1 point for every answer YES. Note that within one question, there are multiple smaller questions designed in a progressive way. To get a big YES, you need to answer yes to all of those small questions. Sounds tough?
These are the questions I ask myself every year to clean up my finances. When can be a better time to do this than now when the holiday spending frenzy is over (hopefully with not too much damage) and a new exciting year just breezes in.
If you find the questions a bit exhaustive, just feel free to relax them as you wish. But think about it! You’re reading this post because you want to tidy up your finances. If any of your accounts or products give you troubles to shout out a confident YES, it means you don’t know that product well enough, don’t use it often enough, or don’t keep track of it. Chances are you might be bleeding for its fees without even knowing. You have a solid reason for not sweeping it away, don’t you?
Okay! Time for a matcha latte and harvesting points!
1. Checking accounts
Can you name all your checking accounts, have full access to them, know their monthly fees/fee waivers, have their monthly statements, (roughly) know their balances, and know which one(s) your income goes into?
I use my checking account to receive paychecks, getting occasional cash from ATMs, and make a few debit-only or debit-friendly transactions per month.
Unless you’re a student, most traditional Canadian banks charge a monthly fee for having a checking account or require a minimum balance as a fee waiver. Digital banks such as Tangerine neither charges you a monthly fee nor requests a minimum balance. They instead pay you a small interest for having a checking account.
It’s now time to consolidate your checking accounts to avoid paying unnecessary account fees or opportunity costs by maintaining a fee waiver.
2. Savings accounts
Can you name all your savings accounts, have full access to them, know their interests, have their monthly statements and tax documents, (roughly) know their balances, and know the saving goal for each of them?
Opposite to having as few checking accounts as possible, I have multiple savings accounts that I set up for different saving goals. I like to keep my savings in different accounts because I want to have a crystal clear picture of how each of my saving goal is doing. All my savings are transferred automatically from my checking account every two weeks after I get my paycheck. I don’t even have to think about them.
Savings accounts are usually free, but traditional Canadian banks only pay you back a tiny bit of interest. Again, digital banks such as EQ bank and Tangerine are my go-to for savings accounts. They offer seriously higher interest rates compared to traditional banks. Plus setting up and managing multiple savings accounts with digital banks is a breeze.
If you haven’t done so, it’s now time to shop around for the best savings rate your hard-earned money deserves.
3. Borrowing products
Can you name all your borrowing products (credit cards, lines of credit, term loans, car loans, student loans, mortgages, etc.), are you actually using them, do you have full access to them, know their terms and/or interests, have their monthly statements, (roughly) know their balances, know their payment due dates, and never forgot a payment?
I have no term loans nor mortgages. I have three credit cards that I use frequently for everyday purchases. Why I need three? Because I want to maximize my cash and point rewards. I pay my balances in full every single month, without exception.
You may have heard this advice to help relieve consumer debt: cut all your credit cards?! I agree that credit cards make spending just so convenient, but let’s not be fooled! Consumer debt is rooted in the spending mentality of people, not in a piece of plastic.
Most credit cards actually reward you cash back or points when you charge your purchases on them. Good credit cards often provide cardholders with insurance, extended warrantee, fraud protection, and perks! Smart spenders take advantage of the convenience, protection, and the reward features of credit cards instead of blaming the plastic pieces for their debts.
Unlike checking and savings accounts, borrowing products come in much more varieties. Different people have different needs. Make sure you’ve got the best deals for your financial situations, get rid of products you’re not using, find alternatives to save on fees, and please always pay in full and pay on time.
4. Investment accounts
Can you name all your investment accounts, name most of the financial instruments you’re investing in, have full access to your accounts, know their fees and charges, have their monthly statements and tax documents, (roughly) know their balances, know the remaining contribution rooms on your registered accounts (TSFAs and RRSPs), and can gather all materials for tax filing on your non-registered accounts?
Because interests earned from savings accounts can barely keep up with inflation, investing is a wise thing to do with your money. Talking about investment accounts will take me another full post.
My main point applies here too: you may have multiple accounts as you truly need, but keep them manageable or pay a professional to manage them for you. The consequences from neglected investments can cost you a fortune. Those include penalties for over contribution to TFSA and RRSP, missing or incorrect tax filings, and unfavorable market movements.
5. Recurring payments and subscriptions
Can you name all your recurring payments and subscriptions, are you actually using them, do you know their costs, have their monthly statements, know which accounts they automatically suck money from?
Setting up recurring payments and subscriptions can significantly free your mind, avoid late payment, and save you quite a lot of time. Most subscriptions let you set automatic renewals too. However, it can also be a hidden and dangerous consumer trap.
Automation is slick, but can be costly at the same time, especially to forgetful minds. The payments silently sneak out of your pocket before you even notice. Make extra sure you have enough money in your accounts for the recurring costs. Non-sufficient-fund charges can be hefty.
Also make sure you pay for what you are actually using. For example, if you don’t need that home phone or cable, cut it. If you can read for free on any topics from the internet (that you might have already paid for), why do you need that magazine subscription? Are you overpaying your data or internet usage? Are you overpaying credit card annual fees for card features that you don’t need? Are there any memberships on the loose? The list goes on.
What’s you total score?
0: Oops! Your finances are disconnected from your life. Please try again later.
1 – 2: You must be overwhelmed by your finances. However, they are essential to a responsible adulthood. Start by giving your finances a thorough tidy up. Come back visit the questions as you try harder.
3: Not bad for making the average score. There’re still rooms for improvement if you truly care. You can bring your finances to the next level. You’ll get there eventually if you keep up.
4: You’ve done well! Just pay closer attentions to small things here and there to keep your finances neat and up to date. These efforts will pay back in the long run.
5: Splendid! Congrats on taking a great lead of your finances. They’re well ordered and ready to be the base for the next step – setting up your finances for a long-term sustainability.
Thanks for making it through my first long post. I hope the information is useful for you, and I hope you’ve dusted some hidden corners of your finances. Now that we’ve done decluttering, stay tune to my second post of the series: building the 3 pillars of self-sustaining wealth.