Make your resolutions now – get busy in January!
It’s traditionally the time to make resolutions and make a fresh start in the New Year. And with the holiday spending bills coming in through January, it’s a great time to take control of your personal finances. Here are five personal financial planning ideas to focus on starting in January and taking you through 2022.
Resolution #1: Set a goal
If you haven’t done so already, find a quiet time to sit down with your significant other and get to know yourself. Review (or list) your life goals, values, investment goals, and financial objectives. Are you looking for early retirement? Or cutting your mortgage debt?. You might want to save for a vacation or children’s education.
Set some financial objectives. For example, resolve to set aside a fixed amount from every pay cheque (you can do it through an automatic transfer), and put it into an investment account. Set aside whatever you comfortably can and increase it as your income increases and circumstances change.
Resolution #2: Make a plan
Write down your financial priorities. For example, a down payment on a home, a retirement fund, a vacation, new car – all of these need a plan. Then make a budget.
It’s not a four-letter word. In fact, it’s six letters. And if you’re going to spruce up your finances, Budgeting isn’t that difficult. Simply deduct what you spend from what you earn every month. If you come up with a negative number, you’re “over budget,” and you have a problem. If you have money left over, you’re on the right track.
If you are “over budget, start paying more attention to where your money is going. Record every expense for a month. You’ll soon find out where you are frittering your funds away.
Resolution #3. Pay off your credit cards
When you pay using a credit card, you’re borrowing money and agreeing the repay according to the terms of the loan agreement you signed up for way back when. If you don’t pay in full when your monthly bill turns up, you get charged interest on the unpaid balance, somewhere between an 18% and 30% annual rate, compounded, of course. That’s like an extra $300 on every $1,000 you leave unpaid for a year. Pay off that credit card debt first. And do it now!
Resolution #4: Open an RRSP and a TFSA
If you already have these tax-advantaged registered investment accounts, good for you! But if you don’t, resolve to open them this year (this month for an RRSP, so you can get a tax deduction for contributions applied to the 2021 tax year), and start contributing regularly. Both the RRSP and TFSA shelter investments within the plan from tax, and are essential long-term savings and retirement planning vehicles. You don’t need a lot of money to open a plan (often as little as a $25 initial deposit will do the trick), and regular contributions from then on will get the power of tax-free compounding working for you right away.
Resolution #5: Keep what’s yours with some tax planning
You are legally entitled to arrange your affairs to pay the least amount of tax. In fact, you’d be foolish to do otherwise. Tax planning is complicated, and usually requires expert help. However, you can analyze your current family tax situation to see if you’re taking advantage of all personal and family deductions, credits, and write-offs available. This includes, for instance, the deduction you get for making an RRSP contribution (see Resolution #4). Other major tax-planning opportunities include specialized tax-minimization planning for those who are business owner/managers, professionals, senior executives, and self-employed. It’s here you need expert help to take care of all the details and make sure you don’t get into hot water with the Canada Revenue Agency.