We are now half way through the first month of 2019. Given the recent volatility in stocks and worries about the economy, predicting what the new year will bring is no easy task. But there are some steps you can take so that your personal finances will be more secure.
If you’ve made a money-related resolution for 2019, take some time to make it smart: specific, measurable, action-oriented, realistic, and timely. For example, your goal might be to buy a car. A version of that goal would be more strategic were you could aim to save $15,000 to buy a used Prius in three years.
There’s plenty more you can do this month to organize your financial life for a better year ahead.
Save More for Retirement
This year you could save more in your workplace group RRSP (Registered Retirement Savings Account). Consider increasing the amount you are contributing, making sure you’re saving at least enough to get your employer match.
Remember that even the most generous matching policy won’t be enough to fully fund your retirement, so it’s always a good idea to save as much as possible. If you don’t have a group RRSP at work, consider setting up a recurring auto-deposit into an individual RRSP.
Reduce Investment Fees
The beginning of the year is a good time to review the fees you’re paying on your investment accounts. Fees aren’t always easy to notice since they’re deducted from your return, but they can make a big difference in the long run.
Make a list of the mutual funds that you have and consult with your broker to ask what the fee is or look up the “fee load” for each fund’s ticker symbol on Morningstar. When searching for the fees you’re paying, another term to look out for is “expense ratio,” which is the annual ongoing fee charged to administer and run the mutual fund.
Consider Rebalancing Your Portfolio
A typical rule of thumb when it comes to how you balance your investments is to subtract your age from 100. If you follow this advice, a 40 year old would have 60 percent of his investments in stocks and 40 percent in bonds. But while that might be a good starting point for investors, knowing what type of risk you’re willing to take is really the most important consideration. If huge market swings, like the ones we had in December, make your stomach turn, you may want to go with a more conservative investing approach.
Whatever the allocation you choose, it will change over time as values of stocks and bonds rise and fall. To bring your portfolio back into balance, you may need to shift money from your winning investments into those that are lagging. That will probably require you to take profits in your highest-flying funds, which could be a timely move. You should also make sure that you’re well diversified, with your investments in large and small Canadian, US. and international companies, emerging markets, and real estate.
Shift to a Higher-Interest Bank Account
Interest rates have been rising, and that’s likely to continue this year. That means you might be able to get a higher return on your cash simply by shifting it out of your bank to another account offering higher savings rates. Online banks and credit unions currently offer significantly higher interest rates than many big national banks. So do some smaller banks.
Another option is to invest in a GIC, which may offer even higher returns. But remember that if you do that, your money will be locked in for a set period of time.
Use Your Flexible Spending Account
Typically, flexible spending accounts, such as those associated with a healthcare plan at work, are use-it-or-lose it dollars. You set aside a certain amount of pretax money to spend on qualifying medical expenses not covered by your health insurance. It’s important to understand, though, that if you don’t use the funds by the end of the plan year, you could lose them. Some plans offer a grace period of two and a half months.
Stick to a Budget
Creating a budget is much easier than sticking to a budget, and as a result many attempts at curbing spending fall flat. Set yourself up for success by adding a budget to your financial to-do list this month. Consumers across all income levels struggle with spending more than they earn. Over one-fifth of adults aren’t able to pay all of their current month’s bills in full.
Start by listing your fixed expenses, as well as your monthly after-tax income. Subtract the recurring bills you have (such as your mortgage and car payments) from your income to figure out how much you have left over for variable spending. You can even take it a step further by dividing that amount by four. That’s how much you or your family can afford to spend on a weekly basis.
If it’s clear that the amount you have for spending isn’t enough to keep you afloat, then you have to do more than just set a budget. It might be time to ask for a raise, look for a new job, or add a side hustle to cover your expenses.
If none of those options are feasible, then consider decreasing your fixed monthly expenses. Downsizing your home or your car may not be desirable, but if you’ve been struggling lately, you might be surprised at how much of a relief it is to cut those expensive recurring payments.
Buy Items on Sale in January
Between post-holiday shopping fatigue and winter weather woes, heading to the store may not be high on your priority list. But for those willing to make the trip, January can be a good time to buy products on deep discount.
Fitness fanatics and couch potatoes will find deals on products including exercise equipment and televisions. Bargain-hunters can stock up on bedding, winter clothing, and holiday décor as stores clear out inventory to make room for new items. If it’s a purchase you were planning to make anyway, it’s worthwhile to buy while it’s on sale.
Consider Professional Financial Advice
A financial adviser can help you make sure your finances on track and being managed correctly. But remember that not all financial advisers are created equal.
There are two types: Those who are required to give advice that is in your best interest, and those who are held to a less rigorous standard of being required to recommend “suitable” products and strategies. The former is called a fiduciary and is the preferable way to go to avoid potential conflicts of interest.
An adviser adhering to a fiduciary standard would recommend, say, investing in low-cost funds for a fixed fee instead of comparable funds that charge more in commissions. He or she would have to promise no hidden fees that might surprise you later.
It’s always wise to ask a prospective adviser—or even your current one—for written confirmation that he or she will act as your fiduciary. If an adviser can’t assure you that he or she is a fiduciary, find one who can. Northern River Financial does that with every one of our clients. Find out why it is important in Keeping Life Current.