The start of a New Year is usually accompanied with New Year resolutions – physical, emotional, professional and financial. As 2014 comes to an end, we sit and reminisce about “what we should have done”. There are many people who wish they would have done things differently in 2014 – wishing they would have saved more money, paid off more of their debts or invested more in their personal financial plans. Despite the many “should of” or “would of” situations you may find yourself in, there are various efficient ways to plan going forward and manage your finances for the year ahead. Look at it as a blank slate.
1. Budget and stick by it!!!
This is a very important starting point. Take a look at your bank
account and payments made over the last quarter of the year (6 months
should be a sufficient analysis). Track your expenses and analyse what
you are bringing in and what you are spending. You want to make sure
that your spending is not exceeding your income. If it so happens that
you are spending more than you have coming in, you can consider
budgeting going forward. Even the smaller items make a difference and
add up. Perhaps you can cut back on buying lunches or your daily
Starbucks coffee run.
2. Pay Yourself First!!!
David Chilton, the author of the Wealthy Barber is a strong believer of
this being one of the most important financial planning strategies to
help you obtain financial independence.
Paying yourself means that with every single paycheck that you receive a
percentage should be going into some form of long terms savings.
According to David, if you are able to, 10% of your income should go to
long term savings out of every paycheck. By doing this you will make
sure not to over spend as once it has been taken out of your bank
account you don’t have access to it, “Out of sight out of mind.” Both an
RRSP and TFSA’s are great savings vehicles for this strategy.
3. Create an emergency fund
In life, there will be times where you will come across financial
“emergencies”. Your car breaks down, you get let go of your job,
something in your house breaks down etc. An emergency fund can be put in
place to help and protect you in situations of unforeseen events.
Setting up a savings account for your living expenses for a term of
between 3 to 5 months should be a sufficient amount for the year in case
you endure any unexpected financial struggles.
4. Pay down high-interest debt and protect credit
This tip can go a long way. If you are one of the many people who have
high interest debts, it would be extremely beneficial to pay down these
debts before any others. You will save more in the long run. If you can
refinance your interest rates and make payments towards the remainder of
the debts, you will be able to knock down those high-interest debts.
Equally as important is maintaining good credit – this means make your
payments on time and avoid taking on too much credit. Stay apprised of
your credit score and make sure it is valid and up to date.
5. Insurance review
Over time your circumstances change and your insurance should also
change accordingly. Take the time to review the insurance coverage you
have in place and make sure to ask yourself if it is sufficient for your
circumstance. You might have purchased a new house, had a child, got a
new job or even started a business. It makes sense to review the
coverage to insure that your family’s livelihood does not drastically
changed in case of unforeseen events occur.
Financial planning can be fun and advantageous! These are just five
of many tips that can help you manage your money. Start your year off on
a good note by trying out these 5 tips – you will be able to reduce
spending, maximize saving, budget effectively, offset risk and introduce
yourself to new financial habits that will work in your favour. By the
time next year rolls around, you will be able to reassess and redefine
techniques for the following year!!
For more information visit www.wecoveryou.ca or call one of our financial advisors today at 416-849-1653 to see how we can help!