When I got my first paycheque and started off in the working world, I was a bit overwhelmed with all the things that I needed to do to manage my money. If I knew in my 20’s what I know now in my 30’s, I’d probably be a millionaire in Canada already! I thought it might be useful to compile a list of some basics on how to manage your money in Canada. Here are eight steps (in no particular order) on money management in Canada.
Create a Budget (or Reverse Budget)
In order to figure out how much money comes in and comes out in the month (and to make it so that more money comes in than goes out), you have to create a budget of how much you spend on a monthly basis.
Split your budget to include essentials (like shelter, housing, food, transportation) and non-essentials (like clothing, entertainment) so you can have a quick glance at the proportion of your paycheque that is going to these categories.
I’ll be honest though, personally, I don’t like to budget, I instead reverse budget, and pay myself first. I don’t feel that budgets work very well, I find them similar to diets. Diets don’t work well for me.
I do tend to do an ‘annual budget’ and add up all the numbers in categories that I’ve spent over the last year to estimate how much I intend to spend in those categories for the upcoming year.
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Track Your Net Worth
I don’t think I would be where I am at today if I didn’t sit down to write my first net worth as a teenager many (many) years ago. You really don’t know where you’re going if you don’t know where you stand. To this day, I look forward to ‘net worth day’ (one day of the month) where I sit down, grab a pen, and calculate all my assets and liabilities. It is actually therapeutic for me, believe it or not.
Here’s a step by step on how to calculate your net worth.
You might also want to calculate your liquid net worth, since I truly believe they are a better measure of your actual net worth.
If you are not into a pen and paper (or manual spreadsheet) to calculate your net worth, a net worth tracker like Wealthica is fantastic, especially if you have a lot of investment accounts or bank accounts scattered all over the place (e.g. I am a self confessed bank account hoarder).
For example, if you have a trading account with Questrade, but also have an RRSP with BMO Investorline, and you want to aggregate them and see the bigger picture, Wealthica is a great tool. They are like the “Personal Capital” of Canada, or Mint but for investing for Canada. Here’s my review of Wealthica.
Build an Emergency Fund
The importance of having an emergency fund cannot be overstated. Life happens, and things come up that need to be paid off quickly. There isn’t a fixed guideline on how much of an emergency fund you need, some people say 3-6 months of income, and some people say 3-6 months of expenses.
I personally think 3-6 months of expenses should do the trick. Here’s how to save 6 months of expenses as your emergency fund from the Rate Supermarket blog.
As with all types of savings, an automatic payment to yourself, starting off small (e.g. $100 a month or even $20 a month) is the way to go. Moving it out of your chequing account as soon as you get paid on payday is how I manage my money.
It also doesn’t hurt if you have compound interest working for you too while you are building your emergency fund.
Here are some high interest savings accounts that give you a generous interest rate in Canada:
- EQ Bank’s Savings Plus Account is a 1.50% every day interest rate*. It is a hybrid chequing and savings account so you don’t get dinged in overdraft fees. Here’s my review.
- Motive Savvy Savings Account is 1.10%
- Laurentian LBC Digital Bank is 1.15%
- Canadian Tire High Interest Savings Account is 1.10%
Alternately, you could keep a minimum balance of $5000 or $6000 as part of your emergency fund in your chequing account and then you’ll also be able to qualify for a lot of free things with your big bank, like free banking for example, or a premium credit card that would normally cost $120 annually, and a safety deposit box.
Here are some chequing account bonus offers (free iPad or $300 cash) in Canada.
Find Out Your credit Score
Until a few years ago, you had to pay to get your credit score in Canada. I never found out my credit score unless I was applying for financing for my mortgage. Yes, kind of embarassing as a Canadian personal finance blogger. Nowadays, there are a few companies providing free credit score reporting in Canada. These free credit score reporting companies are Credit Karma and Borrowell.
You can also get your credit score for free through some banking portals, you may have noticed this already when you log into your bank.
Knowing your credit score is important if you want to manage your money in Canada. You should know your credit score especially if you intend to borrow in the future, for example, for a car loan, or for a mortgage. You’ll get better rates (which means you’ll pay less in interest) if your score is excellent. Here’s what’s considered a good credit score in Canada.
The main one that I use on a regular basis is Borrowell. It’s free.
Relate: Equifax and Transunion, Why’s There a Difference Between the scores?
Get Rid of Debt
The Canadian household debt load rose to 175.9% at the end of 2019. This is part and parcel due to the high cost of the never ending love affair with Canadian housing. There’s good debt and there’s bad debt. Some people use debt to their advantage like using the Smith Manoeuvre and the HELOC (home equity line of credit) and can build wealth that way.
Even though housing costs are rising and mortgage debt is seemingly innocuous, the effects of increased expenses can seep into other areas of your personal finance, like less money for emergencies or for unexpected expenses, leading to credit card debt. Credit card debt is terrible for your finances because of their suffocating high interest rates.
Using strategies like the debt snowball can help you get rid of debt (again, using small increments and paying off small increments, then focusing on the bigger ‘snowballs’).
Side Hustle Your way to Riches
There are lots of ways to earn a little extra money ‘on the side’ on top of your day job. Having more income is great because it’s easier to save money (everyone has core expenses and the bigger the gap between the income and expenses, the more you may be able to save). The gig economy is huge and I think underestimated in Canada. Driving for Uber, delivering take-out via SkipTheDishes the list is endless for side hustle ideas.
Here are a few low effort examples of ‘side hustles’ that I’ve tried in the past.
- Selling stuff on Craigslist or Facebook Marketplace (your junk is another person’s treasure). Recently we got gifted a Google Home and I didn’t want to be listened to (haha, it listens to you I think!) so I sold it on Craigslist. Just make sure you tell someone you know where you’re meeting and meet in a public place.
- Rent your place out with Airbnb when you’re on vacation. It takes a lot of cleaning (I spent 7 hours cleaning one time and it still was not clean enough in my opinion) and it is beneficial if you have a naturally uncluttered place but you can rent your place out with Airbnb if you’re traveling- this is obviously easier if you don’t have kids because there’s less ‘stuff’ to hide. I earned enough to pay off my trip when I did this a few years ago.
- Dog sit with Rover.com. I have never done this but I did happily hire people to dog sit my dog when I was away. $25-45+/day can be made dog sitting. This is perfect if you’re a student or if you work from home.
- Sign up for new bank account promotions. There are lots of new bank account promotions offered every year. Everyone wants your business. $300 in cash or a new iPad for signing up a new chequing account is the norm these days. There are even new online brokerage promotions too.
- Sign up for free stuff if you have a family, like free baby stuff in Canada and free stuff for your kid’s birthdays. Not really a side hustle but every little bit helps!
That being said, it seems like these days, if you don’t side hustle or participate in the gig economy, you’re considered to be wasting your time. I disagree, I think it’s a personal choice. There are some side hustles that are high yield and lower effort. For example, I feel that driving to deliver food to people is low yield and high effort, especially when you have to deal with city traffic. It’s not worth it.
Start On the Path to Passive Income
One of my favourite ‘incomes’ is dividend income. It’s my favourite form of passive income because the money just keeps rolling in and it is consistent. It also is truly passive and takes very little upkeep, especially if you select excellent dividend paying companies to invest your money with and have a large moat to protect yourself from recession and market crashes.
Dripping your shares and dividends give you even more passive income.
Here’s how to invest as a millennial… so you can start earning that passive distribution and dividend income.
Here are 9 easy ways to earn passive income in Canada.
FInd Easy Ways to Save Money
I love saving money, and I find it a nice challenge to try and save money here and there. I’m not overzealous about it though as I value my time and energy too (for example, I wouldn’t go to five different grocery stores in one day to buy apples at one shop and cheap pasta at another shop). I do have my limits, haha.
Here are some fast ways to save money that can add up to $7200 a year in savings. Some of them just involve a phone call (and some gentle negotiation skills).
I even figured out ways to save money during my maternity leave too, when my income was low and all I was looking forward to were the Child Tax Benefit payment dates.
One low effort way to save money is to sign up for Rakuten.
It’s a cash back portal. You can get 1-10% cash back at many retailers in Canada, such as Chapters-Indigo, Amazon.ca, Walmart.ca, and Shoppers Beauty Boutique. If you make a $25 purchase (one that you’re planning on making anyway) you can get a $30 bonus free.
Here’s my review of Rakuten Canada. It’s great. This tired mom approves.
On top of that, you can get 10% cash back on some credit cards (for a promotional defined duration and maximum amount, anyway).
Save money on your birthday even, by treating yourself with free birthday treats.
How to Manage Your Money Summary
Okay to summarize, there are a few steps (in no particular order) that you can take if you ever wondered how to manage money in Canada.
- Create a budget (or reverse budget)
- Track your net worth
- Build an emergency fund
- Find out your credit score
- Get rid of debt
- Consider side hustling
- Start to create passive income
- Find ways to save money
Hope you found these personal finance tips to manage your money helpful! Now you can see how much you ‘should’ have saved up by age 35 and saved up for retirement by age 40.
Do you have tips on how to manage money in Canada?
What’s your favourite aspect of money management in Canada?
GYM is a 30 something millennial interested in achieving financial freedom through disciplined saving, dividend and ETF investing, and living a minimalist lifestyle. Before you go, check out my recommendations page of financial tools I use to save and invest money. Don’t forget to subscribe for blog updates, a free dividend yield spreadsheet, and the free Young Money Bootcamp eCourse.
4 thoughts on “How to Manage Your Money in Canada”
I can’t speak to Canada specifically, but it is a good time to get back to the basics covered in your article here GYM.
@Tom- Thanks Tom! Have a good week.
Great list GYM. In times of unease it’s alway good to go back to the basics. This post is a great reminder of that. Moving forward I think many of us can benefit from the basics instead of trying to overcomplicate things.
@Maria- Thanks for visiting, stay safe!