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Want to properly manage your money? Build these 7 habits.

By Paul Murphy

20-year financial veteran Paul Murphy explains the best way to manage your money with 7 essential habits. These habits will help you stay out of debt, stick to your budget, and build long-term financial stability. 

I know that when it comes to managing money, it can sometimes feel like financial security is out of your control. If you find yourself struggling to make sense of your money, you’re not alone. More than 67 percent of Canadians aren’t confident when it comes to handling their finances.

But, with some simple money management principles and expert tips you can gain control—and get ahead of—your finances. There are tons of articles on money management out there, so we’ve saved you the time and effort by gathering the best advice and information, all in one place. Continue reading to discover the big seven habits that will ensure you’re set up for financial success, along with ways you can improve your money situation right away.

The big 7 habits for financial security

If you’ve ever tried to find financial advice on your own, you know that there’s an endless amount of information available. It can be hard to know what advice is worth taking—and where to even start.

These seven key habits are here to help simplify the process with proven advice and tactics:

1) Begin—and stick—to a budget.
2) Plan for the unexpected
3) Avoid the 3 big risky money behaviors
4) Feel the power—or damage—of compound interest
5) Understand your credit score
6) Take drastic actions on big debts
7) Invest in your financial education

1) Begin—and stick—to a budget

Just saying the ‘B’ word can cause many people to go into panic mode, but trust us—budgeting doesn’t have to be painful. A healthy budget is  the cornerstone of good money management keeps your spending under control, but leaves room for the things that bring you joy. A proven way of creating your ideal budget is with the 50/30/20 formula.

Coined by Harvard bankruptcy expert and US Senator Elizabeth Warren (you may have heard of her) and her daughter Amelia Warren Tyagi, the 50/30/20 formula helps keep your spending aligned with your long-term financial goals.

According to this formula, your budget breakdown and money management should look something like this:

50% for your needs. This includes groceries, medications, housing, utilities, health insurance, car payments, and other items that would severely impact your life if you were to go without.

30% for wants. This is where costs such as dining out, entertainment, shopping, and any fun extras, go.

20% for savings. This is pretty self-explanatory, but it’s important to make sure you’re setting money aside with either a savings plan or as payments towards current debts. Your future self will thank you.

Make sure you’re using your after-tax (net) income amount to calculate your budget using this formula. You can easily figure this out with neuvoo’s helpful online tool.

Simply choose your province and enter your current income, and neuvoo will provide a monthly, biweekly, and weekly breakdown of what you’re bringing in.

For example, if you had a salary of $45,000 per year in British Columbia (or $3,006 per month after taxes) your budget breakdown would look like this:

$1,503 for needs
$901.80 for wants
$601.20 for savings

Once you’ve established your budget it’s important to stick to it, no matter how tempting those bright white sneakers in the shop window are.

It’s important to have a very simple way of tracking your money and where it’s going every month to ensure you stay accountable.

Some popular ways of tracking your budget include:

Digital apps and tools. Mint is a free online tool and app (for Apple and Android) that securely connects to your bank accounts and helps you effortlessly manage your money. Mint will send you notifications and alerts if you go over budget, as well as track your bills with alerts when it’s time to pay so you’ll never be overdue.

The Envelope Method. If you prefer to see the physical state of your finances, the Envelope Method might be perfect for you. You can either label three separate envelopes with the budget categories mentioned above (needs, wants, savings) and divide cash that way, or create subcategories for your spending (wants) account and divide into the appropriate envelopes.

Spreadsheets. Spreadsheets can allow for a more detailed look at where your money is going every month, which lets you plan and budget more efficiently. Vertex42 has a free downloadable spreadsheet template and a more general money management template that both work on Excel and Google Sheets. If you want to keep things simple, Google Sheets also provides annual and monthly budget templates.

Remind yourself of your money management goals. This tip goes hand in hand with whichever budget tracking method you choose. It can be hard to motivate yourself to save money or not go over budget when there’s no end game in mind. When you set achievable goals, you have something tangible to visualize every time you reach for your wallet.

2) Plan for the unexpected

Even the most iron-clad budgets can be thrown off by unexpected financial events. Whether it’s something positive like a new addition to the family, or something tough like a sudden death or job loss, you can minimize the damage to your bank account with some careful planning.

An emergency fund is key to proper money management and makes sure you are preparing for the unexpected. It’s much better to take money from your own cash reserve you’ve saved, rather than have to take it from the bank and have to pay interest on it.

Here are some tips to help you prepare for an unexpected financial situation:

Build an emergency fund. This might seem like a given, but many people delay creating an emergency fund until it is too late. Many financial planners suggest having an amount equal to at least 3 to 6 months worth of income set aside for emergencies. These funds should be liquid (meaning easily accessible) and remain in your chequing or savings account. To get the most out of your emergency fund, find a savings or chequing account that is separate from the one you use for everyday spending, lets you make withdrawals without penalty, and allows you earn interest.

Be proactive. Take a look at your current situation and consider any possible threats. Write these down, and estimate any associated costs and ways you can arm yourself against financial hardship. This could be in the form of life or home insurance, a prenuptial agreement or cohabitation agreement, and/or an emergency fund. This doesn’t mean you need to sit down and think about every possible disaster that can hit, but rather rational events that are within the realm of reality according to your current situation.

Set up a line of credit. Another way of being proactive for homeowners is setting up a secure line of credit on your home. This lets you access cash when you need it, for a very low cost. You should secure this before you find yourself in a sticky situation because even if you don’t find yourself needing it, the knowledge that it’s there and available if necessary can provide priceless peace of mind.

Think about your dependents. It’s not only important to prepare for the unexpected for yourself, but for those who depend on you such as your partner or children.

Half of all Canadians say they don’t have a will in place, and a quarter of them believe they’re too young to worry about it. Make sure you have a legal will in place so that if your family is left dealing with the unthinkable, money will be the last thing on their mind.

3) Avoid the 3 big risky money behaviors

Sticking to a budget and preparing for the unexpected can only do so much if you’re regularly taking unnecessary financial risks. While old money management habits may die hard, it’s worth changing your behavior when it comes to these common risky practices.

Not understanding money management basics. Simple financial literacy can save you from making crucial money management mistakes in the future. Take time to educate yourself with these free courses and resources from the government of Canada, books, online blogs, and workshops. We’ll outline some of our favorite options at the end of this article.

Ignoring financial problems. While it may feel difficult to tackle your debt and money issues, refusing to acknowledge them won’t make them disappear. Take a deep breath and come up with a plan and budget that works for you. Even just doing this simple first step can help you feel more in control and motivated to continue working on your debt.

Making late credit card payments. The fees for late credit card payments have continued to increase, meaning what was bad is now even worse. When you miss or make late payments, you risk your interest rate increasing, your credit score lowering, and even your financial institution canceling your credit card. Set reminders on your phone or download a money management app such as Mint (mentioned above) to help you make payments on time.

Paying the minimum balance on your credit card. When you only pay the minimum payment due, it will not only take you longer to pay off your debt, but you’ll end up paying much more. If you don’t pay off your credit card in full each month you could be paying an additional 50 percent on every item you buy. Use one of 4 Pillars’ Debt Calculators to see how long it will take you to pay your credit cards off, and just how much you could be saving in interest with increased payments.

4) Feel the power—or damage—of compound interest

Compound interest is a way your money is continuously working for, or against, you. With compound interest, a bank or institution pays interest on the interest they have already paid you. As the evil twin to that scenario, compound interest can also refer to interest you’re paying on balances that include previous interest, such as credit card debts.

As an example of the good kind of compound interest, if you put $1,000 in a savings account with an annual 5% interest rate, you’d have a total of $1,050 after one year. In your second year, however, you’d be earning interest on this amount which includes the $50 of interest you’ve earned. So by your second year you’d have $1,102.50. That’s an extra $102.50 you earned without having to lift a finger.

While it seems simple initially, calculating compound interest can get pretty complicated, pretty quickly. The Rule of 72 can make this a whole lot easier by helping you calculate approximately how long it will take to double your initial investment.

To use the Rule of 72, all you have to do is divide your interest rate by 72.

72 / [Your interest rate] = the number of years it will take to double your investment

So, if you invested $1,000 at a 5 percent interest rate, the Rule of 72 finds that it would take about 14.4 years to reach $2,000 thanks to compound interest (72 / [5] = 14.4).

But, as mentioned above, compound interest and the Rule of 72 have a dark side. As interest rates for credit cards, loans, and other forms of debt are usually much higher than rates for savings accounts, the Rule of 72 can quickly turn on you.

Say you have $5,000 in credit card debt. That number might not seem so bad on its own, but when you plug in the 20 percent interest rate with the Rule of 72, you discover that in just 3.6 years your debt will have doubled to $10,000.

As you can see, compound interest is a powerful force when it comes to your future financial security. It’s a more advanced side of money management but a great tool to help you build real security.

5) Understand your credit score

We touched on the topic of your credit score above, but it’s important to have a clear understanding of how this number is calculated—and why it matters.

Canadian household debt has continued to rise since the 2008-2009 recession.

While Millennials have higher assets and net worth than Gen-Xers, they also carry more debt. Whichever age bracket you find yourself in, a good credit score should be a goal for your overall financial future as your loan and credit options will differ depending on where you stand.

What is a good credit score?

For Canadians, a credit score can range anywhere from 300 to 900. If you fall in the 800 to 900 range you are considered to have excellent credit, but anything above 650 will usually allow you to qualify for a standard loan. Credit Karma provides a more detailed breakdown of the different score ranges if you’re interested in learning more.

How do creditors calculate your score?

While credit bureaus and lenders don’t share the actual formulas they use to calculate credit scores, there are some known behaviors that affect it.

Payment history. A good record of on-time payments will positively affect your credit score, while late payments or having your account sent to a collection agency will negatively impact your score.

How long you’ve had credit. Having an established and longer credit history makes you a more trustworthy borrower. Carefully consider the consequences before closing long term accounts before applying for a loan or credit.

Balance-to-limit ratio. According to Equifax (one of the two main credit bureaus in Canada), keeping your balance below 75 percent of your total credit can help your score.

Delinquencies. Events such as bankruptcies, collection agency involvement, and charge-offs will undoubtedly cause your credit score to take a hit.

The number of new credit applications. It’s good practice to avoid applying for new credit unless you have a genuine need for it. It looks suspicious to a lender if you have a history of credit inquiries, especially over a short period of time. When you apply for new or additional credit, lenders have to conduct what is called a “hard inquiry” against your account. This type of inquiry lowers your score. A “soft inquiry”, when you request access to your own credit report or your business checks your file for updates to your existing accounts to approve credit limit increases, will not impact your score.

Variety of credit accounts. Having a mix of credit items like credit cards, line of credit, and car loans will positively affect your credit score—as long as you’re regularly paying them off.

How can you improve your credit score?

While some methods for improving your credit score can’t be done overnight, there are definitely tactics you can immediately incorporate into your lifestyle to set yourself up for success. For additional actions you can take, read this article.

Apply for a secure credit card. This is an option for either those who are just starting out and don’t have credit history, or those with poor credit history. Cards such as the Home Trust Secured Visa require you to put down a deposit (anywhere from $500 – $10,000) for a credit limit of that value. This lets you prove that you can make disciplined debt repayments, and start building up that credit score.

Make credit payments on time. This is crucial when it comes to improving your credit score. Set reminders for yourself in whatever form will work to ensure you’re making those payments on time.

Stay under your credit limit. Try to use only a percentage of your available credit. When you use all of, or more than, the limit you’re seen as a greater risk to lenders.

Keep old accounts open. While it may be tempting to switch your old credit accounts over to newer ones for points or perks, the new account would be considered new credit. With this, you’d lose the history on your previous account, which can negatively impacts your score.

6) Take drastic actions on big debts

Whether due to a lack of knowledge, poor decisions when you were younger, or a big life curveball, there are times when simple solutions won’t help with your financial situation. Whatever your debt problem may be, there’s help available.

What debt reduction options are available?

Speaking to a credit counsellor. Talking to a credit counsellor won’t affect your credit score. However, you should know that credit counselling agencies are funded by large banks and credit card companies. As a result, they typically will suggest solutions that don’t involve debt reduction, often keeping you in debt longer than other programs and in turn a longer impact on your credit score. Look at all options before entering a Debt Management Program with them.

Debt consolidation. A debt consolidation loan is when a financial organization provides you with money to pay off your outstanding debts by bringing them all together in one bigger loan. This provides a single loan payment, along with lower interest rates. You must have a fair credit score to qualify for a debt consolidation loan. You can read a more detailed breakdown of debt consolidation here.

Lower interest rates overall
Lower monthly payments
You’ll get out of debt quicker
One payment to keep track of instead of multiple

You still have debt, so need to make sure you stay on top of it
Not all debts can be consolidated. While credit cards, personal loans, utility bills and other loans usually can be, mortgages can’t.

Consumer proposals. Consumer proposals let you pay back a portion of what you owe, without the added stress of bankruptcy. They’re administered by a Licensed Insolvency Trustee and are basically an offer you’re making to the creditors asking to pay back your debt on your own terms.

The Trustee has a dual role to protect the debtors interest and represent the creditors and is paid a percent of whatever you repay to your creditors.

Avoid bankruptcy
Can often reduce your debt by 70 to 80 percent
Interest is frozen the day you file
Collection calls stop immediately
Low risk of losing house or assets

A negative impact on credit rating and remains for a minimum of three years
Creditors vote on a proposal and can reject it
A legislated process which requires full disclosure of all financial information


Sometimes bankruptcy is the only option. When you file bankruptcy, it means that you are insolvent, ie. your debts are bigger than your assets. It is considered a final choice for individuals who have exhausted all of their other options. Once you’re discharged, most of your debts are officially erased.

A fresh start
Wage garnishments stop immediately
Interest stops accumulating from the day bankruptcy is filed
Collection agencies can no longer contact you

Negatively impacts your credit score and remains for seven years
You can lose major assets such as your home and non-exempt savings and investments
You may lose income tax returns during your bankruptcy
Doesn’t erase student loan debts of less than seven years old

It’s important to note that no one is legally prescribed to represent the debtor under bankruptcy legislation and with only two options, consumer proposals and bankruptcy, Licensed Insolvency Trustees (LIT’s) are limited in the advice and services they can provide to debtors during their initial discovery into the debt help available.

LIT’s owe a duty to both creditors and the administration of the consumer proposal process, they cannot act as advocates for debtors when making consumer proposals.

Debt consultants or Intermediaries can provide independent, unbiased information to debtors which include information on the consumer proposal and bankruptcy process, along with a review of other potential solutions including consolidation loans, re-financing, support from family and friends, sale of assets and improved budgeting, and debt repayment strategies.

This gives the debtor much-needed information, the opportunity to make a fully informed decision, and the ability to confidently commit to their chosen solution.

Services provided by debt consultants:

Debt consultants provide a full review of all options available to manage debt. They offer a financial assessment to determine if the client can avoid insolvency. And advocate for a consumer to help obtain the best possible outcome of a chosen debt solution.

They also work with the consumer to implement chosen debt solution and can access a network of LIT’s with varying interpretations of the BIA.

Other benefits of debt consultants include providing comprehensive financial rehabilitation programs, educating and improving the financial literacy of their client, and providing credit rebuilding and credit education programs to reduce the impact on the client’s credit rating and help keep them out of debt and to avoid future financial failure.

Finally, debt consultants help to remove conflicts the LIT faces in performing their duties and responsibilities to the creditors in administrating a consumer proposal or bankruptcy.

How can you get a student loan forgiven?

Canadian students owe approximately $28 billion in student loans, which doesn’t exactly allow for the best start to their careers. If you’re struggling with provincial or federal loans, there are resources available to help.

Repayment assistance programs (RAPS). While this isn’t forgiveness, it can definitely help you pay your loans. Every province has one, which allows borrowers to reduce monthly payments and pay back what you can reasonably afford.

Canada Student Loan Forgiveness for Doctors and Nurses. If you’re a doctor or a nurse you can qualify for student loan forgiveness if you work in an underserved or rural community. A doctor or resident in medicine can receive up to $40,000 over 5 years ($8,000 a year) and a nurse can receive up to $20,000 over the same amount of time ($4,000 per year).

Debt restructuring plan. If your student loan is over seven years old, it is considered unsecured and can be included in a debt restructuring plan like the ones mentioned above.

Canada Student Loan Forgiveness for Doctors and Nurses

If you’re a doctor or a nurse you can qualify for student loan forgiveness if you work in an underserved or rural community. A doctor or resident in medicine can receive up to $40,000 over 5 years ($8,000 a year) and a nurse can receive up to $20,000 over the same amount of time ($4,000 per year).

Including student loans in a debt restructuring plan

If your student loan is over seven years old, it is considered unsecured and can be included in a debt restructuring plan like the ones mentioned above.

Every province has a number of alternative options for student loan payment help. The following links will provide information relevant to whichever province you call home.

7) Invest in your financial education

Investing in your financial education is something that will pay off time and time again. By understanding where your money is going, and where the best place for it is, you can make sure you avoid costly mistakes. Here are some resources to get you started and make you better than the average Canadian at money management.

The best books on proper money management 

A Canadian’s Guide to Money-Smart Living. This EIFLE (Excellence in Financial Literacy Education) Award-winning online book was created by the Chartered Professional Accountants of Canada (CPA). At only $6.99, it’s a great place to establish a foundation when it comes to your money knowledge.

Happy Go Money. With Happy Go Money, hit TV show The Social’s financial expert Melissa Leong cuts through the noise to show Canadians how to get the most out of every dollar. The book is approachable and easy to understand, boasting 5 star reviews across countless sites.

Living Debt Free. Author Shannon Lee Simmons has worked with thousands of financial planning clients, and knows that the only way a debt plan will work is if you can have a life and pay down debt at the same time. In this book, she shows you how you can take control of your finances and pay down your debt in a realistic way that will keep you motivated.

Beat the Bank. Former senior banker and Investment industry insider Larry Bates provides a simple and easy to understand guide to investing for Canadians at all levels. If you aren’t sure where to start with investing, this book can help you out.

Broke Millennial. In this book, financial expert Erin Lowry shows those in their 20- and 30-somethings how to take control of their money and stop living paycheque to paycheque. While this book isn’t specifically for Canadians, the general advice is definitely still applicable and not to be missed.

The best online resources for reducing debt

Financial Literacy in Canada. This online resource from the Financial Consumer Agency of Canada has amazing free resources and guides to answer your most pressing money questions.

Money and Finances by The Government of Canada. This other easy-to-access resource from Canada.ca provides advice on managing your money, staying out of deep debt, pensions and retirement, and pretty much any other money topic you can imagine.

Practical Money Skills. This free financial literacy program was created by Visa and is available to all Canadians. They offer calculators, games, and lesson plans tailored for use by Canadians of all ages and financial literacy levels.

CPA Financial Literacy Resources. This section of the CPA website has publications, worksheets, calculators, and additional resources to help strengthen your financial know-how.

Equifax. One of the two recognized credit check bureaus, Equifax has a dynamic online education bank full of information related to debt and your credit score.

Your Money, Your Choice. This YouTube channel is run by portfolio manager Susan Daley. She can help you navigate the complicated world of personal finance with her easy to understand explanations of everything from TFSAs to Index Mutual Funds.

Half Banked. This website was created by Desirae Odjick, who went from being a close to broke new grad that “cried over money on a semi-frequent basis” to a homeowner, confident investor, and savvy saver. Her site generously offers free resources and a blog divided into four key categories: saving, spending, investing, and budgeting.

Maple Money. As one of the first Canadian personal finance blogs, Maple Money has a comprehensive supply of financial literacy resources. The site’s blog offers advice on topics like 48 ways you can make money in your spare time and 30 money apps you need to use right now. 

The best podcasts on money management 

The Maple Money Show. This podcast provides content complementary to the Maple Money website, with a new personal finance expert as a guest each week. You can find it wherever you like to listen to podcasts. Plus, a video version is coming to YouTube soon.

Build Wealth in Canada. If you’re looking to start an investment portfolio, this podcast is a great place to start. Once you enter your email address, you’ll have access to all of their episodes and countless other resources.

Mostly Money. Host Preet Banerjee shares advice and insight into topics such as personal investing, starting a business, marketing, management and more.

The best online courses for reducing debt

Financial Fundamentals. The Business Development Bank of Canada has made this free online course for Canadian entrepreneurs. The course uses gaming and simulations to teach business owners a number of concepts such as cash flow management, financial statements, understanding profitability, performance monitoring and raising external capital.

About 4 Pillars

We’re Canada’s largest debt restructuring firm helping Canadians navigate debt and find the best option to solve their debt crisis. Begin by speaking to a real expert in your city. Every assessment is free and we’ll hear your story and review your options. You can find the office closest to you here. 


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