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Financial Basics 101 - Part 1

Financial literacy is defined as, “having the knowledge, skills, and confidence to make responsible financial decisions.” According to a recent survey, a whopping 87 per cent of responders said a lack in those financial literacy skills is contributing to our growing consumer debt as a nation. Many also believe our schools need to get better about offering financial literacy education to our youth. Even so, where does that leave the thousands of adults who feel they don’t have the knowledge to get a better handle on their money?

By starting here! In this two-part series, we’ve put together a comprehensive list of financial basics to get you started on the path to financial literacy, along with resources to further your education.

The financial skills in these articles are based upon the Government of Canada’s Financial Toolkit, a 12-module program that teaches you, quizzes you, and overall helps you get a leg up in your own money management.

Managing Spending and Budgeting

There are two parts of a budget: Your income and your expenses. The difference between the two is either how much extra money you have left or how much debt you have.

Step 1: Determining Your Income
  • Salaried: For those with a fixed income, what you make in a month is pretty clear cut. Simply add up your paycheques over a four-week or 30-day period. Whichever you choose, make sure your expenses are tracked in the same way.
  • Hourly/Tipped: For those hourly or tipped workers, it can be a bit tougher. Start by reviewing your paycheques and bank statements over a six-month period. Add up each month’s income and divide it by six. You’ll then have your monthly average. Sometimes tracking your tipped income is a real hassle, though; simplify it with technology! Mobile apps like ServerLife - Tip Tracker can help hairstylists, ridesharing drivers, real estate agents, servers, and more to input, monitor, and manage their tipped income. 
Step 2: Determining Your Expenses

After you’ve determined your income, turn to your expenses. Again, your bank statements are an important resource, as are store receipts. There are three main types of expenses:

  • Fixed Expenses: There are two types of fixed expenses. One is a bill that doesn’t change each month, such as rent or car payment. The other type is a bill you know you have to pay each month, but it might change, such as hydro.
  • Variable Expenses: There are certain items we may regularly purchase, such as household cleaning supplies, that don’t need to be purchased every month. Other examples include car oil changes, fuel, clothing, and items for pets.
  • Irregular Expenses: Items on this list will include birthday gifts, trips to the dentist, vacation, or entertainment. These are expenses that are not as common or predictable. 

You may have to spend at least a month tracking all your expenses; some suggest at least three months of tracking is required for a full picture. Here is a helpful monthly budget tracking worksheet to get started.

Once you have all expenses in for the month, add them up and then subtract it from your monthly income. What you have left is considered surplus. If you are in the negative, this is considered a deficit, or more commonly known as debt.

Managing Credit Cards and Loans

While we all may not know our individual credit scores, we do know what a credit score is. Simply put, it’s the number that tells us how difficult or easy it will be to borrow money, either via credit cards or loans.

Credit Cards

There are dozens - if not hundreds - of types of credit cards available. Some people use credit cards to cover fixed monthly expenses and then pay it off at the end, to build a good credit history. Others use them as emergency cash for a surprise bill. It’s important to know that even if you pay off your balance each month, there are still fees associated with having a credit card. Common costs include:

  • Annual Percentage Rate (APR) which is broken down into months. Your balance at the time your interest is assessed for that month will determine how much you pay. Zero balance at the end of each month means zero APR paid.
  • Annual Fees which are assessed once a year based on the card. Typically the more perks and rewards, the higher the annual fee.
  • Late and Over-Limit Fees which are charges associated with late payments (usually a flat rate) and going over your credit limit.
  • Cash Advance Fees are levied on your credit card if you use it to withdraw money from an ATM.

If you do not have the best credit score, getting a credit card can be difficult. That’s when it may help to turn to other loan alternatives such as a payday loan for those emergency situations.


Just as there are many options for credit cards, there are a wide variety of loans to consider. Your access to these loans may also depend on your credit score, though there are loan options for low credit. Here are the most common types of loans available:

  • Mortgages (Home Loan)
  • Car Loans
  • Lines of Credit
  • Payday Loans
  • Installment Loans
  • Personal Loans

Tips to apply for loans include:

  • Before applying for a loan, make sure you know what your budget can afford, rather than relying on what the loan originator says you can afford. They only have access to certain numbers, while you have the full picture.
  • Identify whether the pre-approval process requires a “hard check” on your credit to monitor possible impacts to your score. Read more about hard checks on your credit now.
  • Get the best rate by shopping around, but make sure to do it in a short period of time, as several checks in one period are less damaging to your credit than several checks over a longer period of time.
  • Make sure you understand all the fees associated with the loan and ask the loan originator to explain each to you.


How to Pay Off Debt

How much debt should you carry? A common rule is that your loans (besides your housing or mortgage debt) plus credit card balances should not exceed 20 per cent of your annual income. Your monthly payments should not exceed 10 per cent of your monthly income.

Getting into debt can be simple and happen fast. Getting out of debt, though, can often take much more time. Putting together a plan of attack can help you see the light at the end of the tunnel, and give you the control you need to feel like you have a handle on things. Here are some quick tips to paying off debt. Check out our full article on the essentials to getting out of debt.

  1. Determine what you owe on every account. That may mean pulling your credit report - which can be free annually.
  2. Use the waterfall (or step down) method, where you pay more on the highest-interest loans first and go down from there.
  3. Look for ways to come up with cash and lower your budget to make room for more payments towards your debt.
  4. Consider consolidating all your debt into a single loan to better manage the payments and potentially secure a lower interest rate.
  5. Only borrow when absolutely necessary, from reputable sources, so you can avoid increasing your debt while paying it off.

In Part II of the Financial Basics 101 series, we cover Ways to Save, Setting and Reaching Financial Goals, and Protecting Yourself from Fraud. Check back soon for this and other articles on the 310-LOAN blog, covering everything you should know about money management - so you can build your own financial literacy starting today!

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