Don’t set impossible financial goals
The New Year is a great time for making resolutions and for taking control of your finances. Easy to say, but not so easy to do! When you resolve something vague like, “I promise to spend less in 2015,” that’s a resolution that you’re almost certainly bound break, probably sooner rather than later. So here are four financial resolutions to help you get your financial life on track that you won’t break by mid-February.
Resolution #1: Set a goal
If you just promise “not to spend more,” you’ll soon be disappointed. That’s because you have no objective. Do you mean you won’t spend more than $1,000 per week? Or more than you’re spending now? Or what? It’s easy to break this type of “resolution” and get right back into your old habits.
Instead, set some financial objectives. For example, resolve to set aside a fixed amount from every paycheque, and put it into an investment account. It’s even easier if you arrange with your bank to make an automatic transfer. Make the amount realistic. Some advisors insist you save 10% of your income. I say set aside whatever you comfortably can, even $25 a week – but do it consistently. You can always increase the amount you set aside later, as your income increases and circumstances change. Over time, it can really add up.
Resolution #2: Make a plan
Next, assess your financial priorities. Write them down. Are you saving for a down payment on a home? Are you setting funds aside for retirement? Do you need funds for a vacation? Or a new car? All of these need a plan. That way, you can set priorities, and assess what resources you have available. A financial planner is an expert at this sort of thing, so if you want to go beyond that kitchen notepad list, find a Certified Financial Planner who can help you out.
Resolution #3: Allocate assets properly
This is a must for those who already have some investments, whether in a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA). And that is: Make sure your overall investment holdings reflect your tolerance for risk. If you tell me that you’re an ultra-conservative investor, but your portfolio consists only of equity mutual funds, you’ve got something mixed up. This is fairly easy to fix with a questionnaire I use to draw up a realistic risk profile for my clients. Using this profile helps you rebalance your portfolio for the New Year to just the right mix of safety, income, and growth assets that reflect your true risk tolerance – and let you sleep nights.
Resolution #4: Open an RRSP and a TFSA
As mentioned above, 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 2014 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.
Find a planner
Sometimes, personal financial planning can get a little overwhelming. Budgeting, balancing the books, dealing with debt (especially those post-Christmas credit cards), setting investment goals, determining risk tolerance, allocating assets, selecting, monitoring, and managing investments can be a full-time job – not something most people want to do if they already have a full-time job and a busy family life.
That’s where you may want to enlist the help of a Certified Financial Planner (CFP). These are specially trained experts who can help you identify your life goals and help you create a workable financial process to achieve them.
© 2015 by Robyn K. Thompson. All rights reserved. Reproduction without permission is prohibited.