The average person spends most of their life seeking financial stability. We work and use our income to pay the bills, cover household expenses, save for retirement, and hopefully have a little fun.

a man and woman laughing

It can feel like you’re not moving forward; many people resign themselves to it, but beware of getting bogged down.

What is “good financial health” and how is it measured?

The Financial Consumer Agency of Canada offers a range of tools and resources to improve financial literacy in Canada, for example

Information on saving, investing, and retirement planning

Financial well-being does not happen overnight: you must constantly monitor all aspects of your finances and adjust your habits. With the following indicators, you will be able to assess your current financial health and measure your progress over the months and years. 

The budget

If you keep a budget and monitor your monthly expenses, it’s a sign that your financial health is moving in the right direction.

So you know exactly how much you earn and spend, and where your money is going. Your financial indicators are even better if you systematically respect the limit set for each expense item and make it a point of honor to save for emergencies, retirement, investments, and your major projects. 

Even people in excellent financial health overspend from time to time. However, they review their budget accordingly and ensure that these deviations do not become a habit.

Credit cards

Yes, even people who exude financial health use credit cards; only, they do not depend on the latter for the slightest purchase. They also don’t resort to high-interest credit to fill holes in their budget.

Coming back to you, this means first and foremost that you pay off your balance in full each month. In addition, you only pay by credit card for the expenses planned in your budget (groceries, for example). 

When a person in good financial health knows that they will be inclined to use their credit card for unbudgeted expenses, they often choose to block it or leave it at home.

Savings

People in good financial health don’t just put money away each paycheck (even if it’s just $20): they have clear goals associated with their savings.

Emergency fund – You do what is necessary to save the equivalent of three to six months of expenses to deal with emergencies (job loss, home repairs, etc.). Even if you are still far from your goal, if you are working towards it, that is a good sign.

Major purchases and financial goals – You plan certain purchases (smartphone, new car, down payment, whatever) and save each month for that purpose.

But first and foremost, you recognize that regular savings are undoubtedly the most effective way to escape the cycle of debt, in which we carry costs that we can control and others that we cannot control. no catch.

Retirement

The ability to view your long-term financial health is another favorable indicator. It can be difficult to plan for upcoming expenses 30 days from now. What can we say about those that will occur in 30 years? But small actions today can pay off big later.

Registered plans and investments – You set aside a percentage of your monthly income to contribute to a pension plan, a registered retirement savings plan (RRSP), a tax-free savings account (TFSA), or other investments. You benefit from the employer contributions offered to you, if applicable.

Debt in Retirement – ​​You have every intention of retiring debt-free and are taking steps to get out of debt. If this milestone in your life is approaching and you still have debts, you have consulted a licensed insolvency trustee to find out what options are available to you and how you can repay your loans more quickly. If you have a mortgage, you know at what age you’ll close it and you’ve looked at accelerated repayment options (for example, every two weeks).

Retirement planning advice – To fully understand and achieve your investment goals, you have to consult a financial planner or investment advisor. You have an idea of ​​the annual amount you will need to live on in retirement and a plan to raise the necessary funds.

Credit Report

Your credit report is only one part of your financial health, but it provides some very important clues.

Regular check of your file – You request a copy of your credit file from TransUnion Canada and Equifax Canada each year, and you check it for accuracy. You immediately contact the credit reporting agencies or your creditors to have any errors or inaccuracies corrected.

Understanding the factors that influence your credit score – You know your payment history (missing or late payments), using more than 30% of your allocated credit, closing your oldest credit account or frequent credit inquiries are harming your record.

Credit Score – Your score is above 650, which makes you eligible for most loans with reasonable interest rates. You take steps to improve your credit score, for example, you opt for pre-authorized monthly payments, only pay with credit cards for small purchases that you can afford, and pay off your balance in full. 

Have your credit situation assessed for free

Our website offers a variety of self-service tools to help you manage your finances and assess your financial well-being. The MNP Debt Barometer is particularly useful for understanding the effect of your debts on your financial health.

Fast, friendly, and completely confidential, it can help you determine whether your debt is affecting your financial goals, what’s holding you back, and what you can do to improve the situation.

If the barometer reveals a failing credit situation and financial health, we invite you to contact our licensed insolvency trustees for a free consultation. Together you will examine your financial picture and the options available to you to get back on the right track.