Have you ever been in a serious financial struggle? If you have then you know how terrible it feels. Not knowing if you will be able to pay your next bill or even put food on the table can put massive stress on your shoulders. Even though there are solutions to get debt free, it is definitely a situation you do not want to find yourself in.

So how do you make sure you never find yourself facing financial problems? Well, as a Bankruptcy Trustee, I deal with people struggling with debt every day. Just as much as every situation is unique, there are patterns that surface from analyzing the situation of thousands of clients. I have learned from those patterns and so can you.

Here are 5 tips to live a healthier financial life:

1. Build up an emergency fund

I cannot emphasize enough how important it is to have an emergency fund. How much should you have in it? The answer to that question really depends on your situation. However, if there is one thing you should remember is the function of the emergency fund:

An emergency fund is a source of liquidities (cash or investments you can turn into cash in a very short period of time without a loss of value) that will protect you from getting in debt if a short-term perturbation were to affect to you (loss of income or increase in expenses).

Generally, I recommend you have an emergency fund that amounts to 3 months of your typical spending. You could decide to put aside a larger amount if you are worried about your job stability or if you have dependents (children, parents, at-home spouse, etc.).

2. Know how much you can spend / need to earn

There are two categories of people who build up debt: (A) people who do not earn enough money and (B) people who spend too much money.

If you are in category A, life is not easy. You are not a big spender and you do not indulge in luxuries, but every month you end up having to use credit to make ends meet. Since there is a limit to how much you can cut down on your expenses – and you certainly do not want to start living in your car – you need to find ways to increase your income. Maybe it will be by taking up a second job, starting a part-time company or simply asking your boss for a raise. Whichever way suits best your situation, you need to make it work.

If you are in category B, what I will tell you won’t be easy to accept. You need to reduce your expenses. You probably tell yourself “I don’t feel like I am over-spending but month after month I can’t put money aside.” The reason why you can’t put money aside is simple: you do not know how much you can spend. Once you will have figured that out (by doing a budget) you will have the information you need to do better buying decisions.

3. Pay off costly debt first

Once you have paid for your most basic needs (shelter, food, transport, health, etc.), the first place where you should put your available money is on your most expensive debt. That kind of debt can consist of credit cards, payday loans, high-interest personal loans, etc.

Sometimes you see people who try to save up their money when they still have that kind of expensive debt. They hope to save money for the future and make interest on that money. However, if you have debt that’s accruing at the rate of 20 – 30% per year, I can guarantee you that you won’t find a (legal) investment that will balance out that loss. You have to think that every extra dollar you apply on that kind of costly debt corresponds to a virtual return on investment of the associated interest rate (20% for credit cards and up to 30% for payday loans).

4. Plan

Benjamin Franklin once said: “By failing to prepare, you are preparing to fail.” Mr. Franklin was a wise man whose face you can now see on every hundred-dollar bill – the largest denomination printed since July 13, 1969.

Most people do not follow this simple principle. They hope for the best but, unfortunately, “the best” is something that rarely happens. If you want to put all the chances on your side, you need to spend some time planning. Integrate routine planning in your life: every morning, every week, every month, every year.

Personal finance planning can be split into five steps:

1. Assessment: How much do you make? How much do you spend? What do own? What do you owe?
2. Goal setting: What are your short-term goals (e.g.: buying a new dishwasher that costs 800$)? What are your medium-term goals (e.g.: saving 5000$ for a family trip to Quebec, Canada)? What are your long-term goals (e.g.: accumulating a net worth of one million dollars by age 65)?
3. Creating a plan: How will you get there? Will you cut down expenses? Will you increase your income? Will you invest in the stock market? Will you buy property?
4. Execution: Stay motivated and disciplined.
5. Monitoring: Have regular check-ups to see if you are on the path towards reaching your goals. Do the necessary adjustments if it’s not the case.

5. Ask for help

It’s ok not to be an expert at everything. You would not build your own car to get to work or knit all your clothes. Sometimes it’s good to ask for guidance. Professionals have knowledge and experience in their field of expertise. Lawyers, accountants, fiscalists, financial advisors (and even bankruptcy trustees) can help you better succeed!