The New Year is the perfect time to get your finances organized and create a brighter financial future. There’s always room for improvement, regardless of your age or stage of life. Some Canadians need to start with the basics and make a plan to get out of debt. Others need help with budgeting and mastering their cash flow, or to start investing. Here are eight financial New Year’s resolutions for this year – useful tips no matter where you are in your financial journey.
1. Master your cash flow
The key to financial freedom is to spend less than you earn. But what if you don’t know where all your money goes? Start by tracking your spending. Sometimes a simple spreadsheet will do the trick – just save your receipts and plug in the numbers every day or two.
If you loathe pen-and-paper methods, you can automate this by using a budgeting app. For instance, the You Need A Budget (YNAB) app tracks your cash flow, with new users saving on average $600 by the second month and more than $6,000 in their first year (!). So whether you’re looking to get out of debt or monitor your spending, a budgeting app can help you get organized.
READ MORE: The Best Budgeting Apps in Canada
2. Make a financial plan
Once you know where your money goes – 3-6 months of expense tracking should do the trick – it’s time to make a financial plan for the future. Why? Because expense tracking is a backward-looking activity. It’s useful to know where your money goes, but now you need a proactive spending plan to make the most of every dollar.
A financial plan can help you get there. It’s a written report that outlines your financial objectives and priorities, as well as charts out a path to achieve them. The process involves examining how much money you have right now, how much you’ll need in the future, and what you need to do to reach your short- and long-term objectives.
It’s easier to do than you think, and you certainly don’t need to pay a pro to do it. You can easily do it yourself, and again, there are apps that can help. For example, PocketSmith is a personal finance app that not only tracks your spending but also helps plan and forecast for the financial future.
READ MORE: How To Create Your Own Financial Plan in 7 Steps
3. Banish banking fees.
Canadians can be loyal to a fault when it comes to their banking. Big banks charge $10-$20 per month in chequing account fees, which amounts to hundreds of dollars per year. All for the privilege of accessing your own money! Some savings accounts pay next to nothing in interest, and their credit card line-up often leaves something to be desired.
If you’re fed up with fees, switch to an online bank with no everyday banking fees and a decent interest rate.
READ MORE: Complete Guide to the Best Banks in Canada
4. Negotiate a better deal.
Financial inertia can have a negative effect on your bottom line. What’s inertia? Sitting back and accepting rate increases on your recurring bills – from cable and internet to car and home insurance.
Take some time to review your recurring monthly or annual bills. I’m not asking you to give up your Netflix subscription. But a timely call to your telecom provider can yield big savings for your loyalty – all you have to do is ask for better pricing. Make sure to call once a year to negotiate a better deal.
When it comes to insurance, shopping around for the best rate is the key to savings. Try using reputable comparison websites to get competitive insurance quotes from multiple providers, which can help you score the best deal. Some insurance providers offer deep discounts for “bundled” policies.
5. Get a credit card check-up
Is your credit card working for you? It pays to check! At the beginning of the New Year, take a look at the best credit card offers and promotions on the market and see if there’s a credit card worth adding to your wallet.
The bottom line: a once-a-year review of the plastic in your wallet can have a big payoff.
Read more: The best credit cards in Canada
6. Chart a new investing path
Canadians pay some of the highest mutual fund fees in the world – a sorry state of affairs when you consider we have more than $1 trillion invested in mutual funds. With the dawn of the New Year, make a financial New Year resolution to take control of your investments and cut those investment fees to the bone.
If you’re an investing noob, no problem! The easiest way to do that is to switch to a robo advisor – a digital investment firm that uses a computer algorithm to design and manage your investment portfolio, which helps keep fees lower. It’s simple: fill out an online questionnaire and the robo advisor will match your financial goals and risk tolerance to a portfolio to best suit your needs. Afterwards, it builds a diversified portfolio of low-cost index funds or ETFs that will be automatically monitored and rebalanced. Make the switch to a robo advisor and you’ll save a bundle on fees. Case in point: Wealthsimple charges a management fee between 0.40% and 0.50% – that’s a far cry from the 2%+ that most Canadian bank mutual funds charge.
Read more: The best robo-advisors in Canada
Prefer to take the wheel yourself? Open a discount brokerage account where you can build your own portfolio on the cheap. Some brokerages even allow you to trade for free. From there, it’s easy: an all-in-one asset allocation ETF like VBAL or VGRO provides instant global diversification and costs just 0.25%.
Read more: The best online brokerages in Canada
7. Disaster-proof your finances
You’ve mastered your cash flow, banished your banking fees, found new savings by haggling your recurring bills, and switched to a better investing strategy. Now it’s time to take care of the ugly stuff nobody likes to think about: to disaster-proof your life, you need to review your insurance coverage and make sure your legal will is up to date (or that you have one in place!).
Read more: Types of insurance: A guide for Canadians
Part 1: Get life insurance
Most Canadian employees receive a modest life insurance benefit from their employer – typically 1 or 2 times their salary. While that’s a decent start, it’s not nearly enough coverage for young families with dependents – who may require as much as 10 or 15 times their salary to provide for their loved ones.
Again, when it comes to finding life insurance, a comparison site like PolicyAdvisor can be a lifesaver (no pun intended). With just a few clicks on your computer, tablet, or smartphone, the best life insurance quotes will appear on your screen in a matter of minutes. You can also use their life insurance calculators to estimate how much you’ll likely need.
Read more: The best life insurance companies in Canada
Part 2: Get a will
Do you have a will in place? If you don’t, get one pronto. It’s a legal document that states how you want your estate to be divided upon your death, and it’s one of the most important legal documents of your life. If you die without a will, the government decides what happens to your assets and dependents – and their choice may not be the one you would make. Don’t let this happen to you!
Read more: My uncle died without a will – and it was a nightmare
Making a legal will doesn’t have to be daunting or expensive, as online wills are now widely available and affordable. For instance, with Willful, you can make a legal will online for as little as $99 in under 20 minutes.
Read more: The best online wills in Canada
8. Get out of debt
Finally, if you’re bogged down in credit card debt, make it your financial goal to pay it down to almost $0.
If you’ve got credit card debt, switch to a low-interest credit card ASAP. Why pay 20% interest if you can pay 8.99%? Or take advantage of the 0% promotional interest rate offered by balance transfer credit cards. Either way, you’ll save on interest charges and pay off your credit card debt faster. This will help you improve your credit score and chart your way toward financial freedom.
Read more: How to get out of credit card debt faster
You could also look at consolidating your debt. The interest rates for personal loans tend to be much lower than the typical 19% charged by credit cards. Explore the options, but just make sure to carefully compare the rates as well as the terms and conditions.
Read more: The best personal loans in Canada
If you’re really stuck in a debt ditch, you could also consider getting credit counselling. A non-profit credit counselling service like Consolidated Credit can review your financial circumstances and help you make a plan for getting out of debt.
Do whatever it takes, and above all, avoid payday loans at all costs.
Final thoughts: How do you set financial New Year resolutions and goals?
Setting financial resolutions for the New Year doesn’t have to be painful or restrictive. In no time, you can take control of your finances, buff up your emergency fund or retirement savings and find big savings without cutting your spending to the bone or skipping out on that cherished latte. All it takes is a little planning. If you follow these eight steps, you’ll be well on your way to a healthy, happy financial future. Start with making a budget and a financial plan, then move on to tackling other tasks, like setting up automated investments, getting insurance, and making a legal will. Finally, make debt repayment a top priority for the forthcoming year.
Happy New Year and happy financial fitness to all!