Personal Finance In Canada: Free Guide & Tips 2023
Reviewed by Randolph Vialva, MBA
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Personal finance is a skill that will benefit you for the rest of your life. Mastering it is the key to financial success and is essential to achieving your short-term and long-term financial goals. However, with inflation plaguing the globe, prices rising by the day, and unpredictable circumstances in life, taking control of your money and achieving financial freedom can be challenging.
Although most Canadians are confident in their saving, debt managing, and budgeting skills, there is plenty of room for improvement. A survey showed only 54% kept an emergency fund while 49% had debt.
Despite the changing economic landscape, the best strategies remain the same. This free guide will provide the tools and tips to help you manage your finances effectively in Canada.
What Is Personal Finance?
Personal finance covers all aspects of managing your money, including budgeting, saving, investing, borrowing, and managing debt. It also encompasses how you handle retirement planning, emergencies, and mortgages.
Personal finance is about more than just money; it’s about having the financial knowledge to make decisions, helping you achieve your life goals, and giving you peace of mind.
The Importance of Personal Finance
Personal finance is crucial because it helps you see your overall financial picture and enables you to make informed decisions about using your money wisely. By understanding how to maximize your funds, you’ll have the financial knowledge to create a budget that works for the quality of life you want and save money for retirement.
Additionally, taking control of your finances can be beneficial in other areas of life. You’ll have more financial freedom when making major purchases or investing in yourself or others. And by staying on top of your debt and loans, having a good credit score can open up many doors in your financial life, such as getting approved for banking loans with better interest rates and terms.
Areas of Personal Finance Canada
To properly control your personal finances, you must keep certain areas of your money in mind. Once you’ve developed a proper understanding of each, you will be better equipped to make sound decisions for your financial future.
Income
Income is the starting point for any financial plan. It is the money you receive from employment, investments, dividends, and other sources. Income is important because it’s the basis of your financial stability and can help you meet your short-term and long-term life goals.
Be mindful of the deductions for your taxes, and make a financial plan based on your net income. Knowing where your money comes from and how much you make is the key to a proper budget.
Spending
It’s impossible to create a financial plan without knowing where your money is going. Spending is the second pillar of personal finances, and it includes all expenses, from groceries to entertainment. It’s crucial to be mindful of your spending habits and how much your expenses cost. Focus your money on items necessary for living or reaching your financial freedom.
Debt is another aspect of spending. Financial experts say there is good debt and bad debt. Good debt is a loan used to further your financial gains, such as student loans and mortgages. Bad debt is when you purchase items without any real benefit, like credit card spending for luxury items. But the most important thing to remember with debt and loans is to be mindful of the cost and to always pay it off on time.
Saving
Saving can make the difference between financial success and failure. It is the cornerstone of personal finance and should be a top priority for everyone. As they say, pay yourself first before you pay anyone else. It is the most basic method of building wealth and preparing for a rainy day.
The best way to save is by creating an emergency fund, which can help pay unexpected expenses such as car repairs or medical bills. It’s also recommended to save money for retirement, education, and other long-term goals. You can keep this in cash to be liquid, or store it in a banking account with a high-interest rate.
Investing
Investing is the process of putting your money into assets in order to grow it over time. You can invest in stocks, bonds, mutual funds, real estate, and other investments, which may be offered by banking companies or other platforms.
People have different goals as to why they invest, whether it be for retirement or simply to increase their net worth. But overall, you invest to create passive income and profit over the long term (less the tax deductions, of course). You will need to understand the different types of investments and diversify your portfolio to minimize risk.
Protection
In case of unexpected incidents, protection will preserve your finances. Insurance products such as those for life, health, and disability can help protect you from financial hardship in an accident or illness. Additionally, having a will in place is essential for your assets to be distributed according to your wishes upon death.
Cash Back Credit Card For Improving Personal Finances
Contrary to popular sentiment, using credit cards is not entirely bad. It can actually be a good kind of debt if you use them correctly. Credit cards give you access to funds you may not have on hand and help you pay bills on time.
But of course, you should use them wisely and avoid falling into the trap of carrying a balance month-to-month. If you are disciplined with paying bills on time, your credit history can help build your credit score and raise it higher than other Canadians. Moreover, you can regain your spent money through cashback rewards.
A cash back credit card is one of the most efficient and effective ways to improve your personal finances. It allows you to get a percentage of what you spend back in cash, which can be used for other payments or savings. You can enjoy additional benefits like discounts, depending on the card.
Top 5 Best Cashback Credit Cards in Canada [2022]
- Scotiabank Momentum Visa Infinite*: Best Overall
- CIBC Dividend® Visa Infinite* Card: Most Affordable
- Tangerine Money-Back Credit Card: Best No Fee
- BMO CashBack® World Elite® Mastercard®: Best For Travel
- TD Cash Back Visa Infinite* Card: Best for Everyday Purchases
Top 5 Best Cash Back Credit Cards in Canada 2023
Scotiabank Momentum Visa Infinite*
The Scotiabank Momentum Visa Infinite won many “Best Cash Back Credit Card” awards in 2022 for a reason. Its features let Canadians maximize cash back while enjoying great travel benefits. The annual fee is also waived for the first year.
- Impressive earn rates
- 10% cash back welcome offer
- Comprehensive insurance coverage
- $120 annual fee
- Limited redemption options
The welcome offer is enough to entice anyone. For the first three months, you can enjoy 10% cash back on all purchases for up to $2,000. This is a valuable bonus if you’re planning to make big purchases or add to your savings in the near future.
Scotiabank’s cash back earns rates for everyday purchases are unmatched. The card gives you 4% cash returns on groceries and recurring bills, 2% on gas and transit, and 1% on everything else. Among all the spending categories, groceries and recurring bills are two that Canadians regularly spend on regardless of circumstance.
When it comes to insurance, the card has got you covered for emergency medical, trip cancellation and interruption, flight delay, and lost and delayed baggage, all of which are standard. However, the package also includes mobile devices, rental car damage, extended warranty, and purchase protection.
CIBC Dividend® Visa Infinite* Card
Despite the high cash back rates other cards offer, their redemption policies can hold you back. That’s why the CIBC Dividend Visa Infinite Card stands out. With this card, you can redeem your cash back rewards to your bank account at any time through the mobile app.
- Redeem any time
- Unlimited cash back
- Annual fee rebate offer
- Annual fee ($120)
- Cash back redemption only
If you don’t want to wait until the end of the month to redeem your cash back, you’ll find this card to be a very good deal. It allows you to redeem your cash back rewards anytime as long as you have a minimum cash balance of $25. While the card requires an annual fee, its welcome bonus does provide an annual fee rebate for the first year.
This card gives you a 4% cashback rate on gas and grocery purchases, 2% on transportation, dining, and paying recurring bills, and 1% on all other eligible purchases. There is no limit to the amount of rewards you can profit from with this card.
The CIBC Dividend Visa Infinite Card has decent travel insurance covering standard types. These types are out-of-province emergency travel medical, common carrier accident, and auto rental collision and loss damage. As a plus, it also covers the mobile devices.
Tangerine Money-Back Credit Card
Credit cards usually require an annual fee to maintain your bank account, but the Tangerine Money-Back Credit Card charges zero, making it very friendly for your savings. Furthermore, it allows you to earn its highest cash back rate in two categories of your choice, which you can change at any time.
- No annual fee
- Unlimited cashback rewards
- Automatic earning
- Online-only bank
- 2.50% foreign currency conversion
- Limited insurance coverage
The earn rates with this card are easy to remember: 2% cash back on two eligible categories of your choice, and 0.5% on everything else. You can change your chosen categories at any time – they’ll simply take effect on your third monthly statement.
The nice thing about these rewards is that they’re unlimited and are reimbursed directly to your bank account balance every month. Other credit cards may boast higher cashback rates, but you have to remember to redeem them, and they may expire if not used in time.
Its insurance coverage is modest but can be enough if you’re simply looking for spending protection. It offers an extended warranty and purchase assurance on lost, stolen, or damaged items.
BMO CashBack® World Elite® Mastercard®
The BMO CashBack World Elite Mastercard offers premium perks while you earn high cash back on everyday purchases. It’s also the ideal card to bring along when traveling, as it comes with comprehensive travel insurance and unique travel perks.
- High cash back rates
- Generous welcome offer
- Premium travel insurance
- High annual fee ($120)
- Qualifications are high
With this card, you’ll have an excellent first year in terms of cash back. The welcome bonus waives the annual fee for the first year and lets you earn up to 10% cash back in the first 3 months. However, be prepared for paying $120 annually after the first year.
Its standard cashback rates are impressive on their own. This is one of the few cards that offer a high 5% cash back on groceries. The next-highest categories are transit, gas, and recurring bill payments.
Your finances and savings will be protected with this bank account when traveling since the BMO CashBack World Elite Mastercard covers emergency medical insurance, trip interruption, and flight and baggage delay. The package also includes two rare covers: free roadside assistance and personal effects.
TD Cash Back Visa Infinite* Card
Although the TD Cash Back Visa Infinite Card’s cash back rates are not on par with others, its highest rate covers three spending categories. This may be an ideal choice if the majority of your spending falls under these umbrellas.
- Accelerated rate for three categories
- Flexible redemption options
- Robust travel insurance
- $139 high annual fee
- Spend limits
As mentioned, TD’s cash back rates are impressive if you look at the number of categories for its highest accelerated rate. This card lets you earn 3% cash back on grocery and gas purchases, plus paying recurring bills. The rest of your purchases earn you $1.
The bank offers two choices for redemption – you can either redeem your rewards at any time with a minimum balance of $25 or set up annual redemption. The latter option is especially beneficial if you don’t plan on using the money for a few years
The insurance package covers both travel and auto. You are covered for emergency medical delayed or lost baggage, and auto rental loss or damage. Other perks include emergency road services and mobile device.
Personal Finance Strategies In Canada
Once you’re familiar with the areas of personal finance, you can quickly adapt to the best strategies and tips for maximizing your financial potential.
Set Your Financial Goals
The first step is setting up your personal finance goals. Establishing what you want to achieve and how much money it will take allows you to develop a plan of action. When defining goals, don’t forget to take into account how much time it will take for you to reach them. You can set long-term (e.g., retirement), medium-term (e.g., down payment on a house) and short-term (e.g., vacation) financial goals.
Stick to a Budget
Budgeting will help you determine how much money you can afford to spend and save each month, as well as set aside for your personal finance goals. Following a strict budget helps you develop the habit of keeping track of your money habits.
It is also essential to review your budget regularly to remain up-to-date with changes in your income or expenses. There are several budget methods available, including the 50/30/20 rule, zero-based budgeting, or envelope system.
Open a High-Yield Savings Account
Some banking institutions offer a high-yield savings account, which is one of the underrated ways to save money. This type of bank account earns you a higher interest rate than a regular tax-free savings account. You can use the account to grow your finances for emergencies, save for a vacation or additional investments, or have some extra money for retirement.
Set Up an Emergency Fund
While Canadians are confident in their personal finance skills, many are not saving enough money (or at all) for emergencies. An emergency fund is a great way to prepare for any unexpected costs that may arise in the future. Aim to have at least three months of living expenses saved up and stored away in case of an emergency.
Pay Attention to Your Credit Score
Your credit score is an integral part of your financial life. It’s used to determine your eligibility for loans, mortgages, and other forms of credit. Therefore, it’s a good idea to keep track of your score and take steps to improve it if necessary by paying off debt, keeping balances low on credit cards, or taking up loans.
Personal Finance Services in Canada
Personal finance doesn’t necessarily mean managing your money alone. Canada has a number of personal finance services you can take advantage of, including:
- Banks: There are several large banks in Canada, such as TD Bank, Royal Bank, and Scotiabank. These banks offer a broad range of products to help you manage your finances. From a tax-free savings account to credit cards and investments, they have it all. Most will also provide financial advice from qualified professionals at no cost.
- Credit Unions: In addition to banks, there are also many credit unions throughout Canada that offer similar banking services but with lower fees and interest rates than traditional banks. Many of these institutions feature low-income or no-fee options, making them attractive to those with limited money to spend.
- Investment Firms: Investment firms such as WealthSimple and Questrade also provide a range of services to help you manage your finances. These include portfolio management, retirement planning, taxation advice, and more. They also offer investment products with lower fees than traditional banks or brokers.
- Financial Advisors & Planners: If you’re looking for personalized advice to better manage your finances, financial advisors and planners are the way to go.
Personal Finance Education & Skills in Canada
Personal finance knowledge doesn’t require a special degree or education. However, many Canadians lack the basic knowledge needed to make sound financial decisions. You may not have the best understanding of personal finances from school, but you can take advantage of online resources to start learning and improving your money management skills.
Several free courses and tutorials on the internet can help you understand how to manage your money better. Additionally, banks, other companies, such as credit unions, and even the federal government offer financial literacy programs that provide helpful information about budgeting your money, saving, investing, managing debt, taxes, and more.
Final Thoughts
Personal finance is an important tool in managing your money and achieving financial freedom in life. Whether you’re retirement planning or paying for housing loans, being equipped with financial knowledge will help you succeed.
This free guide has given you the tools and tips to understand how personal finance works in Canada. With the proper knowledge and strategies, you can take control of your finances today!
Frequently Asked Questions (FAQs)
Personal finance covers a wide range of topics including budgeting your money, saving, managing debt and loan payments, investing, and more. Managing all these pillars can help you achieve financial freedom in life.
There are free courses and tutorials available online as well as financial literacy programs offered by banks and other organizations, such as credit unions, that offer helpful information about budgeting your money, saving, investing, and managing debt.
If you think you’re a victim of identity theft, contact your financial institution, the local police, and the Canada Revenue Agency (CRA). The CRA will take the necessary steps to prevent money from being transferred and used for paying off suspicious transactions if it suspects a taxpayer’s personal information has been compromised due to identity theft.
The best way to save for retirement is to start early and contribute regularly. Assess the cost you need for the lifestyle you want in retirement, and then set a goal to save that amount.
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- Canada FCA of. Improving your credit score. aem. Published May 27, 2016. Accessed December 4, 2022. https://www.canada.ca/en/financial-consumer-agency/services/credit-reports-score/improve-credit-score.html