Five New Year’s (Financial) Resolutions for 2018
By Cara Brown, CPA, CA
We all have different goals in life. Perhaps you’re loaded with student debt, saving to buy your first house, or planning an early retirement. Whatever stage you’re at, there are some financial fundamentals that will help you achieve your goals. At the outset of 2018, GGFL staff accountant Cara Brown offers her top five financial resolutions:
- The start of the year is a perfect time to create a personal budget. Start by checking your spending last year. How much did you spend on eating out, buying coffee, or on general household goods? Is there anything you can trim from your spending? A crucial point to remember is that it’s OK to have a bad month. We all have unexpected expenses that can throw a wrench into our best laid financial plans. Don’t give up because of one bad month. Try to recoup the next month, and, if necessary, the month after. If you get a pay raise this year, consider it extra money and put it towards debt or whatever you are saving for. Don’t use it to expand your budget. Here are some websites to help you achieve your budget goals:
- Mint allows you to easily create budgets, and offers suggestions based on your spending. The mobile app version for your smartphone makes your budget conveniently available at your fingertips at any time;
- Gail Vaz-Oxlade is an expert on helping people manage their money and get out of debt; you may have seen her television series “Till Debt Do Us Part”.
- You Need a Budget (YNAB) is easy to use and can help you create a monthly budget in just a few minutes. YNAB is designed to encourage you to live on last month’s income. Rather than creating budgets based on future income, your budget is based on income you’ve already earned.
- Before you start to save, pay off your debts. Many of my friends have student loan and credit card debt. Getting those high-interest debts off your back will give you a psychological and financial boost. Once the high-rate debts are paid, consider putting the equivalent monthly payments into lump-sum mortgage payments (if applicable) or savings. You’re used not to having the $300, $500, or more every month, so stowing it away won’t be too painful.
- It’s important to save at least some of your monthly income, even if it’s a small amount. You can have the bank re-direct a certain amount automatically into a savings account to coincide with your paycheque (i.e., bi-weekly). It’s simple to set up and you can arrange to have access to it in case of emergencies. The auto-save amount obviously depends on your circumstances. Consider directing the funds to a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP) within your available limit as reported to you by the Canada Revenue Agency on your annual Notice of Assessment of your tax return.
- Speaking of taxes, ensure you file your annual return on time to avoid unnecessary fines and interest charges on any tax balance you may owe. It also allows you to be considered for various tax credits, deductions, and benefits, including the GST/HST credit and the Ontario Trillium Benefit.
- If you’re having trouble sticking to your budget, consider buying yourself gift cards. For example, I budget $30 a month on my Starbucks coffee and re-load the card each month. When I’ve spent the $30, I stop drinking Starbucks until the next month. It’s a budget trick that can apply to almost anything – eating out at your favourite restaurant, going to the movies, etc.
Finally, when you create a budget, stick to it as best you can, but be realistic. Don’t put an unreasonable financial squeeze on yourself, because that can lead to failure or total abandonment of budgetary goals. Know where you can cut and what you can save, and, if necessary, make a few early adjustments. If this is your first “formal” personal budget, you might not get it exactly right the first time. Reviewing your budget and progress each January is helpful to pinpoint adjustments and celebrate your progress.
Good luck and Happy New Year!