With January just around the corner, many of us are making resolutions for the year ahead. Working to change our habits and establish new behaviours can be challenging, but also invigorating, especially when we see positive outcomes.
It’s common to start January by pledging to achieve better physical fitness or improve our diet. One avenue of personal improvement that often goes overlooked when resolutions are made, however, is our finances.
This New Year, instead of focussing all your effort and energy on improving your health and physique, don’t forget to devote some time and attention to getting your financial situation back in shape, too. Here are a few goals to work towards on that front.
Max out your retirement contribution
Whether you contribute directly to an RRSP, have a company pension plan working to finance your future, or both, there’s no time like the present to make sure you’re maximizing both the available contribution room, and taking full advantage of any matching offers or top-up plans your employer may provide.
Unused RRSP contribution room can be carried forward until age 71, allowing you to make up for a year (or years) when you weren’t able to save as much. However, it’s always better to contribute as much as possible, instead of waiting for later. First, doing so gives your money more time to grow. Second, by maximizing your RRSP contribution, you’ll benefit by diminishing your balance owing at tax time. You might even end up with a refund, giving you even more money to save for the future.
Identify ‘bad’ spending and cut it out of your budget
From subscriptions you never make use of, to regular orders at cafes and expensive restaurants, or an uncontrollable urge to impulse buy, we all have financial weaknesses. Whether it’s $5 a day on coffee to go, $25 each month for a seldom-used gym membership, or $1,000 on a stylish new coat you don’t really need, excess spending eats into your ability to save. Take stock of your spending and look for outlays that are excessive, unnecessary, or both, and work to maintain the diligence needed to change your bad habits. If you can get better at planning meals instead of ordering in, or avoiding shopping the sales, adopting and maintaining a few financial behavioural shifts could have a big impact on your bottom line in 12 months’ time.
Set up, or top up, your emergency fund
The ongoing pandemic has taught us all several harsh lessons about insecurity and unpredictability. The idea that anything is certain or set in stone can no longer be taken for granted. Amid that unstable backdrop, there’s never been a better time to have the financial flexibility needed to withstand unwelcome change. That’s exactly what an emergency fund offers. If you can put away a minimum of three months’ worth of basic living expenses, you’ll have a helpful layer of security against job loss, injury or illness, or some other unforeseen event. If you’ve already got an emergency fund, consider topping it up by an extra month’s worth of expenses, or even more if you can manage.
Review your investments and seek to cut fees
Portfolio evaluation should never be neglected too long, so make time for it at least once a year. Ideally, your investment strategies and options are tailored to fit your current circumstances and long-term targets, both of which can change and evolve over time. Investment purchases and decisions you made five or 10 years ago may no longer fit with your plan. As you review, look for opportunities to cut costs and fees that eat into your investment earnings.
Know what you’re working towards
Motivation is key to achieving goals of any kind, financial or otherwise. Boost your drive by setting targets for your savings. Maybe you want to be able to allocate 15 per cent of your income towards retirement savings. Perhaps you want to put money away for a property purchase. Maybe you’re stashing cash for a family holiday or some other dream travel experience. Whatever the desired outcome, it’s always helpful to have a yardstick you’re trying to reach. Besides providing drive and motivation, it also makes it easier to break down your big savings task into tiny, achievable chunks.