Alright, our Covid summer is over and children are returning to school in various capacities. We all have our fingers crossed that we are seeing a light at the end of the pandemic tunnel. It is no doubt that we all have had a challenging and difficult time navigating financial waters in the last six months and we will definitely have turbulence ahead. Perhaps this is a good time of year to re-focus financially and make some adjustments.
Setting goals to improve your financial situation is a good thing to do at any time of year. Of course, some people find it easier at the beginning of a new year. But truthfully, how many people keep those resolutions. Regardless of when you begin, the basics remain the same. So here are the top ten tips to current your financial alignment.
Get paid what you’re worth and spend less than you earn
It may sound simple, but many people struggle with this first rule. Make sure you know what your job is worth in the marketplace, by conducting an evaluation of your skills, productivity, job tasks, contribution to the company, and the going rate, both inside and outside the company, for what you do. Being underpaid even a $1,000 a year can have a significant cumulative effect over the course of your working life.
No matter how much or how little you’re paid, you’ll never get ahead if you spend more than you earn. Often it’s easier to spend less than it is to earn more, and a little cost-cutting effort in a number of areas can result in savings. And, it doesn’t always have to involve making big sacrifices.
Stick to a budget
Most people and clients will know that I dislike the word budget. It has so many negatives connotations that people avoid it. I like to refer to it as your cash flow. The difference between what comes in and what goes out.
An important step to consider when trying to get ahead financially is managing your cash flow. After all, how can you know where your money is going if you don’t? How can you set spending and saving goals if you don’t know where your money is going? You need to manage your cash flow regardless of how much you make.
Pay off credit card debt
Credit card debt is the number one obstacle to getting ahead financially. Those little pieces of plastic are so convenient to use, and it’s so easy to forget that it’s real money we’re dealing with when we whip them out to pay for a purchase, large or small. Despite our good resolves to pay the balance off quickly, the reality is that we often don’t, and end up paying far more for things than we would have paid if we had used cash.
Contribute to a retirement plan
If your employer offers a group Registered Retirement Savings Plan (RRSP), or another type of employer-sponsored retirement savings program, you should consider contributing to it if you can afford to. Often, with RRSPs, your employer will contribute the same amount that you put toward your account up to a certain percent. This is often referred to as an “employer match.” If your employer doesn’t offer a retirement plan, consider an your own individual RRSP.
Have a savings plan
You’ve heard it before: Pay yourself first. If you wait until you’ve met all of your other financial obligations before seeing what’s left over for saving, chances are, you’ll never have a healthy savings account or investments. Resolve to set aside a minimum of 5% of your salary for savings before you start paying your bills. Better yet, have money automatically deducted from your pay and deposited into a separate account.
Consider setting up a Tax Free Savings Account (TFSA) for those savings. The government allows you to contribute up to $6,000 a year (currently). Any investment return or money made on these savings will be tax free. If you haven’t started, you can contribute a maximum of $69,500. Your contribution room grows annually. You never lose it if you haven’t used it.
Invest
If you’re contributing to a RRSP and TFSA and you can still manage to put some money into other investments, all the better.
Maximize your employment benefits
Employment benefits like a group RRSP, flexible spending accounts, medical and dental insurance, etc., are worth a lot of money. Make sure you’re maximizing yours and taking advantage of the ones that can save you money by reducing taxes or out-of-pocket expenses.
Review your insurance coverages
Too many people are talked into paying too much for life and disability insurance, whether it’s by adding these coverages to car loans, buying whole-life insurance policies when term-life makes more sense, or buying life insurance when you have no dependents. On the other hand, it’s important that you have enough insurance to protect your dependents and your income in the case of death or disability.
Update your will
In 2020, just 51% of Canadians had a will or powers of attorney for health and finances. If you have dependents, no matter how little or how much you own, you need a will and powers of attorney.
If your situation isn’t too complicated, some people chose to do their own. Sure there is competent store will kits or online applications. I am not a fan of those. They are only as good as your ability to answer the right questions and interpret their instructions. Don one better, have a lawyer do it. It is worth the investment. To better protect your loved ones, consider writing a will.
Keep good records
If you aren’t careful about keeping thorough records, you’re probably not claiming all your allowable income tax deductions and credits. Set up a system now and use it all year. It’s much easier than scrambling to find everything at tax time, only to miss items that might have saved you money.
The bottomline
How are you personally doing with the top ten tips? If you’re not doing at least six of the ten, consider resolving to make improvements. Choose one area at a time and set a goal for incorporating all ten into your lifestyle. Of course, another strategy is to work with a trusted Financial Planner who can assist you and act as a mentor.
Time is fleeting and the thought to kick the financial responsibility ball forward only means it will be harder to realign and implement those elements that are missing from your plan. Procrastination is not your friend. It you do not have the time, obtaining assistance is a good way of Keeping Life Current.
