Financial Future

What Does Pay Yourself First Even Mean?

Pay yourself first is a phrase commonly used in personal finance and retirement planning literature that means to automatically route your specified savings contribution from each paycheck at the time it is received.

Because the savings contributions are automatically routed from each paycheck to your investment account, this process is said to be "paying yourself first"; in other words, paying yourself before you begin paying your monthly living expenses and making discretionary purchases.

Investment Vehicles and Types of Investments

Using Credit and Credit Cards

Facts

Credit cards provide interest-free credit from the time of purchase to the end of the billing period
60% of Canadians pay their credit card balance in full each month 1, so for them the interest rate is zero
For those who choose to carry a balance:

Credit cards offer access to unsecured credit (no collateral required)
There are many low interest rate cards on the market and over 30 of those cards have an interest rate of under 13%2

The Bottom Line

Credit cards offer valuable benefits for both consumers and retailers. And the majority of Canadians use their credit card as a method of payment rather than a means of borrowing.

For consumers

A credit convenient and flexible payment tool accepted in more than 200 countries and at millions of locations worldwide. Benefits include:

Access to unsecured credit (no collateral required against amounts charged).
Interest-free payment from time of purchase to the end of the billing period.
Instant payment of purchases, allowing for instant receipt of goods and services.
Coverage for purchases if the item is damaged , stolen or not delivered within 90 days.
24/7 access.
Fraud protection with zero liability to the consumer in cases of fraud.
Other rewards and benefits, such as air travel points, car insurance, damage and loss insurance and extended warranty programs.

For retailers

Retailers are not required to accept credit cards, but do so in increasing numbers because that is the method of payment many customers prefer. Retailers that do accept credit cards receive many benefits, including:

Fast, guaranteed payment, which can reduce line-ups at checkout. If every credit card transaction took an extra 30 seconds, it would use up an additional 27 million hours of staff time each year.
The ability of accepting credit without worrying about the creditworthiness of customers, insufficient funds or outstanding receivables.
Reduced cash on hand and cash handling time and costs, including counting cash at the end of the day, armoured transport, higher likelihood of theft and pilfering and potential mistakes by cashiers.
Increased sales; ability to offer customers a variety of payment options.
Expanded markets; ability to sell to customers throughout Canada and around the world in the currency used by the retailer.

Understanding Credit

Many consumers use credit to help manage their personal finances. Credit can be a mortgage to buy a house, a loan to buy a car, a line of credit for larger purchases or a credit card to make everyday purchases more convenient. It's important to understand how different types of credit work, and how to use credit to build a strong personal credit history. This section provides information on how a credit card transaction works, credit card products, budgeting, and avoiding money mishaps. Understanding credit is the key to using it wisely and making it work for you.

Managing Credit Wisely

It is sometimes easy to pay for purchases on a credit card, but don’t forget that you have to pay for what you buy later. Here are some guidelines for keeping control of your financial affairs and making credit work for you.

Make a budget for yourself and stick to it. Make sure that you know what is coming in and what is going out. That way you will avoid unpleasant surprises on your credit card bill.
Avoid impulsive buying. If you had to pay in cash, would you be making this purchase?
Comparison shop as a matter of habit. Never buy anything - and that includes any form of credit — without comparing costs and value.
Always read and understand credit application forms before you sign them.
Be careful when co-signing a loan or guaranteeing a loan on behalf of others. Remember that you could end up paying off the loan if the borrower cannot handle it. Ask the same questions of the borrower that the lender would. Know the risks involved so that you can make a sensible decision.
Be knowledgeable about the cost of credit. Are you using the right type for your purpose? Are you using a more expensive form of credit than necessary? For example, if you’re getting loans from a payday lender, talk to your bank. Banks have a variety of short-term loans that are much cheaper than payday loans, including lines of credit, overdraft protection and even credit cards.
Be sensible about the number of credit cards you use. How many do you really need? Are you using them simply because you have them?
Keep track of all your credit purchases. Save the receipts for checking against the monthly statements and for keeping a running total of your obligations.
Remember, whether you use cash, a cheque, a card or a loan to pay for your purchases, to check out the reputation of the merchant, the store's return policies, the quality of the goods and the product warranty. Using credit to pay for something does not absolve you of your consumer responsibilities.
Read your credit card agreement to understand how interest is charged on your purchases, including the interest on cash advances. Typically, interest starts to arise on cash advances the day you take out the money.

Credit can be good or bad. It's all about how you use it. Before you decide on using credit, consider all of the factors and weigh them against personal needs and values.

Credit score

The Equifax Credit Score ranges from 300-900. Higher scores are viewed more favorably. Your Equifax credit score is calculated from the information in your Equifax Credit Report. Most lenders would consider your score very good. Based on this score, you should be able to qualify for some of the lowest interest rates available and a wide variety of competitive credit offers should be available to you.

Budgeting

A Budget is an estimation of the generated revenue and expenses over a specific period of time in the future. A budget can be made for a single person, family, group, business, government, country, multinational organization or anyone/anything that makes and spends money. A Budget is a small economic concept that shows the tradeoffs made when one item is traded for another. There are multiple types of budgets for different situations:

A surplus Budget means profits are anticipated
While a Balanced budget means that revenues are expected to equal expenses
A deficit budget means that expenses will exceed revenues

Budgets are usually compiled and re-evaluated on a periodic basis. Adjustments are made to budgets based on the goals of the person, group, or organization. In some situations, budget makers are happy to work at a deficit, while at other times, working at a deficit is shown as financially irresponsible.

Using these concepts canadians and teens, like myself, can formulate strategies that will help us to achieve financial goals if we follow a plan made for our money. For example if I were to make $450 in two months i would have a plan that would divide up the money to cover expenses i might have such as phone bills, clothing expenses, data expenses, phone repairs, and other types of expense, then I might put 10% into my saving account 10% into my spending account 30% into my investments, and donate or spend to rest of my money. Simply estimating and planning ahead can help canadians to work towards financial goals such as buying a car, saving for a house, buying a new appliance or phone, the possibilities are endless if a person, group or organization follows their budget plan. In this image below it shows a budget plan for a local business’ budget and how they organized their revenue and expenses for a certain time period.