You cannot get ahead financially until you make a habit of spending less than you earn.
Never in the history of this planet has it been harder to follow this most basic rule of personal finance. Between social media and the internet, we are immersed in messages to spend. And then there’s the pandemic, which has resulted in pent up demand to buy things, inflation and job losses for some.
I’m starting the newsletter in 2022 with an eight-part back to basics series and you’ll find more explainers and stories on personal finance basics in The Globe as a whole in the coming weeks. To start, let’s look at getting your spending under control so you can save and invest for the future.
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If you regularly have nothing left over to save from paycheque to paycheque, then track where your money is going. Banks are increasingly offering customers free tools to monitor their spending – log into your chequing account to see what’s available. There are also free budgeting apps like Mint and PocketGuard, and a higher-level app called YNAB – for You Need A Budget – that offers a free trial and then costs US$14.99 per month or $98.99 annually.
Use the information you get from this and look at your spending to find areas to cut back. Small expenses are the easiest to address, but it will take a bunch of them to make a meaningful difference in your spending. An idea for a big spending cut: focus your energy on repaying a credit card balance, car loan, student loan or line of credit. Then, redirect the amount of your former loan payments into savings or investments.
Harsh spending cuts are hard to live with, so think about scaling back rather than eliminating things. Restaurants a couple of times a month, rather than once or twice weekly. Family vacations every summer, rather than twice a year. Buying a less exclusive brand of vehicle.
A few other ideas:
- Debit cards over credit cards: it’s easier to control spending when the money comes right out of your account
- Try the 24-hour rule: for splurges, wait 24 hours before buying to see if your enthusiasm fades.
- Check your subscriptions: a lot of us accumulated a bunch of subs in the pandemic, maybe more than we’re actually using.
There’s an emotional side to budgeting that isn’t discussed enough. It can be a bit shaming to be cutting back while your Instagram feed keeps showing you scenes of your friends and family living the lush life. You need a stock phrase to tell people when they ask why you’re not joining them or choosing a cheaper option. How about this: “I’m trying get my finances into shape in 2022 and I’m cutting back here and there to make that happen. Thanks for understanding.”
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Rob’s personal finance reading list
Key financial trends ahead
The Globe’s Jason Kirby put together an extensive package of charts looking at trends in the economy in 2022, including inflation and housing. The annual Maclean’s package of economic charts to watch includes lots of insights on inflation. Also, Investopedia highlights economic trends, sectors and political developments for investors to watch in 2022.
Best credit cards, savings accounts for 2022
A personal finances blogger picks top reward credit cards in various categories likes everyday spending, cash back and frequent travellers. Here are the best savings accounts.
Best cars and trucks for 2022
Car and Driver’s 10 best.
Top financial market risks
A long-time financial journalist looks at risks that could weigh on investors. The first is a COVID-19 mutation, which is already playing out.
Ask Rob
Q: I am considering opening a registered retirement income fund account at Questrade. What happens if the company declares bankruptcy? I know that they are part of the Canadian Investor Protection Fund, and that they have additional insurance and I will be able to recoup my money. My question is how long will it take? I need the proceeds from RRIF for everyday life.
A: Broker insolvencies are rare, and each one is different. So there’s no way to say exactly how quickly your money would be available. CIPF says it’s generally necessary to transfer client accounts to another firm in the case of an insolvency. It’s worth noting that regulators monitor the financial stability of brokerage firms closely. The most recent insolvency of a CIPF member was in 2015.
Do you have a question for me? Send it my way. Sorry I can't answer every one personally. Questions and answers are edited for length and clarity.
Today’s financial tool
A financial goal calculator to help you get out of debt and set a savings goal.
The Money-Free Zone
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Tweet of the week
Candid thoughts on what it means to be the owner of a house that is rising in value.
What I’ve been writing about
- Six ideas for tuning up a portfolio to thrive in a challenging 2022
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- ETFs for investors who want preferred shares, but understand how tricky they are
More Rob Carrick and money coverage
Subscribe to Stress Test on Apple podcasts or Spotify. For more money stories, follow me on Instagram and Twitter, and join the discussion on my Facebook page. Millennial readers, join our Gen Y Money Facebook group.
Even more coverage from Rob Carrick:
- 🎧 Catch up on Stress Test: Are your parents giving you money? • Why it’s time to stop shaming the renting lifestyle • Is now the right time to buy a house? • Why are young Canadians leaving the cities they love? • Eating in: How COVID has shifted our food spending • Crisis-proof your finances? • Can you afford to live downtown? • The cost of kids
- ✔️ The housing file: The housing boom is ripping apart the financial fabric of Canada • Shut out: A well-qualified millennial home seeker throws up his hands after losing multiple bidding wars • Big city housing affordability is over – now what? • She sold her Toronto house to retire somewhere cheaper, but it didn’t work • How young adults and the whole country win with a tougher mortgage stress test for home buyers • Can’t afford your house? It’s likely not your fault
- 📈 Investing: Robo-advisers have grown out of the novelty stage. Here’s help in finding one right for you • The 2021 ETF Buyer’s Guide: Best Canadian equity funds • The 2021 Globe and Mail online brokerage ranking: Who’s best for investing … and answering the phone • Are these the stock market returns of a lifetime? • On the cusp of retirement and wondering about an ETF that pushes the limits on aggressiveness
- 💰 Your money: The five most important numbers for checking the health of your personal finances • Today’s freakishly low mortgage rates can’t last. What will pandemic home buyers do when they rise? • There’s a cost in money, isolation and family stress when seniors choose to remain in their own private homes • Taking CPP early can cost you $100,000 and limit your long term options • Fleeing the city for the suburbs? Watch out for higher property taxes, more cars and other costs
Are you reading this newsletter on the web or did someone forward the e-mail version to you? If so, you can sign up for Carrick on Money here.
