It’s common for people to make New Year’s resolutions, for instance to improve their physical health by working out more or eating better. Too often though, those resolutions fall by the wayside after just a few days or weeks.
Instead, what if you resolved to look after your financial health? Here are some great ideas to get you started.
Make clear financial goals
Instead of vague promises to yourself, like paying down your credit card or creating an emergency savings fund, you should write down a money goal that’s precise and actionable. For example, something like, “By the end of the year I will have paid down my credit card to $0, and have $2,000 in a tax-free savings account.”
Go on a cash diet
Not a crash diet, a cash diet. You can decide you’re going to take out a limited amount of cash from your bank account, and spend only cash, no credit. Or you can choose to have “no spend days” or “no spend months” when you spend no money other than on necessities. Toronto-based money coach Christine White claims, “A cash diet is a phenomenal awareness tool. I liken it to a cleanse or detox to kick-start your financial health.” 1
Some debt is more destructive to your financial security than other debt. High-interest debt such as credit cards should always be paid off first, even if it means using savings to do so. If you have several types of debt, it makes sense to organize them. If you need help, meet with a financial security advisor or a debt counsellor.
Save for retirement
Regardless of your age, it’s helpful to start saving for your retirement, even if it’s just a small amount. Both registered retirement savings plans (RRSPs) and tax-free savings accounts (TFSAs) offer tax advantages and other benefits.
If your employer offers a group retirement savings program, making the most of that opportunity is also a perfect place to begin.
Enroll in pre-authorized debit
If one of your financial resolutions is to save more money, you can begin doing that by setting up a pre-authorized debit - which can be a ideal way to save. It works because the money goes straight from your bank account to an investment, regularly, without you having a chance to spend it. If you contribute to a group retirement plan through your employer, money can come right off your pay before it’s even deposited to your bank account.
Track what you make and spend with an app
For some people, this may mean creating a budget to understand where they spend their money. For others, it may mean adding a personal finance app to their phone that tracks how much they spend. Why is it important to know where your money goes? According to money coach Leslie Gardner, you should understand how much income you need to live and what you spend money on now that you can do without, so you can use that money to invest or take care of another financial planning need. She says it’s important to “take some time and put down all your numbers.” 2
Reduce unnecessary spending
Almost all of us could identify situations where we spend money but don’t get the best value for each dollar. A great way to find money to use for investing or other financial planning strategies is to make changes to eliminate such situations.
When you change your spending habits, even a little, the long-term results could be big. For instance, if you packed your lunch instead of dining out and saved $20 a week, that money invested could grow to more than $38,000 in 20 years. 3
And that’s just one thing. Imagine how much you could save by making several small changes. Looking for ideas? Change your bank account to one that charges fewer fees, or your credit card to one with a lower interest rate or no fee. You could also save on your utility bills by reducing water use or increasing energy efficiency. Go to the movies on “cheap Tuesdays” instead of the weekend. Leave your car at home and instead, carpool, take public transit or ride your bike.
Learn more about finances
If you want to figure out how to fix a leaking faucet, you’d ask a plumbing expert or search for a YouTube video that showed you how. To learn more about how to make the most of your money you can read a book or magazine, listen to a podcast, watch a video, visit a website or blog, or sit down with a financial security advisor or investment representative. Research tells us that investors who receive advice have on average 3.9 times more assets after 15 years than similar investors without advice.4
According to The Financial Consumer Agency of Canada, approximately 85% of Canadians rate their financial knowledge as average or above; however, only 61% can answer 70% of financial knowledge questions correctly.5 If you can do one of these tips every month, before you know it, you could understand more about your money and be more motivated to save it.
Be positive and stay motivated
Doing something for your family, such as finding money to get proper life insurance or investing in your child’s education or your own retirement, is something to feel good about and should inspire you to keep going. Make this the year you resolve to take control of your finances.
1 Tracy Hanes, Cash-only transactions may limit your spending habits, Toronto Star, July 3, 2018
2 Clare Henning, New year, new resolutions: money coach’s tips on meeting financial goals for 2018, CBC News, Jan. 1, 2018
3 Assumes $80 is invested monthly in a balanced mutual fund portfolio with a six per cent annual rate of return. Rates of return are hypothetical and provided for illustrative purposes only. Mutual funds are not guaranteed; their values change frequently and past performance may not be repeated. Unit values and investment returns will fluctuate.
4 Montmarquette, C., & Viennot-Briot, N. (2016). The Gamma Factor and the Value of Financial Advice. CIRANO
5 Leah Golob, Confidence an important complement to financial literacy: report, Investment Executive, April 26, 2018