6 Tips to improve your 2022 Financial Resolutions
The new year is under way and before you get to lost in your day-to-day activities, consider taking the time to set up new financial habits that you can carry into the new year.
Last year taught us all to look at life differently, to appreciate the little things, and to revamp our approaches in dealing with the “new normal”. To set you up on the right foot, here are 6 tips to keep top of mind when thinking about your money this year.
1. Pay down debt
With interest rates at their lowest levels in years, your debt may currently be serviceable within your budget, however, monthly servicing costs can add up. With interest rates likely to rise this year, the interest payments on your debt could start to take a bigger bite out of your resources. Here are a few suggestions to help:
- Don’t add to your debt.
- Set targets to pay down your debt monthly and target the most expensive debt first.
- Consolidate your debt if you can reduce your regular monthly payment and interest costs.
- Keep track of your progress and celebrate each time a payment is made. This will help reinforce the new behavior and a new habit will form…. You’ve got this!
2. Build an emergency fund
An emergency fund is important to help you get through a situation where you are kept from working, or one that requires an unexpected cash outflow. COVID taught many of us this lesson the hard way. Examples of emergencies that could come up include an unexpected illness, a mobility restriction, or a job loss. Having access to small amounts of cash at home along with an emergency fund can give you peace of mind that you can cover your needs should the situation arise. Generally, 3-6 months of expenses is the target, or at a minimum of 1 month of expenses with access to more if needed.
3. Plan for the future
Strengthening your finances in the present is a good first step but looking forward and understanding your income sources in the future is a must as well. Understanding sources of income will help determine if you have a shortfall given what you need to spend. A shortfall can be made up by building savings that will be used to generate investment income and capital you can draw down upon. There are several ways to build these savings, such as in your RRSP, your TFSA or in a regular non-registered investment account as a starting point.
4. Get your estate in order
Many of us have come face to face with thoughts of our own mortality during COVID and there are two certainties in life, death, and taxes. If you don’t have a Will, the government will have one for you that may not align with your wishes. Therefore, the best time to do your Will is now, if you don’t already have one in place. Through this process, you will be able to come up with a plan on the distribution of your assets. A financial advisor can help you identify strategies that align with your goals while minimizing taxes to provide you peace of mind that you will be able to provide for those who depend on you.
5. Understand your approach to money
Understanding what money means to you is often a missed step when thinking about our finances. Is money a cause of uneasiness for you, so you avoid thinking about it? Could your spending habits be better understood? If so, consider using a journal to document why and when spending occurs. Tracking your feelings and reasons around spending will help shine a light for you to gain clarity.
6. Work with a financial advisor
Work with a financial advisor you trust, and if you don’t currently have a relationship with one, make this the year it happens. FP (Financial Planning) Canada and IQPF (Institut québécois de planification financière ) in Quebec are two professional bodies that you can use as a resource to better understand what they do. They also have a database of local providers you can consult. A financial planner’s role is to help you identify your financial goals and to then to help translate them into a detailed plan to get you there. They can also partner with you to help hold you accountable while providing you with personalized steps to grow your money and manage your risk. A holistic financial planner will consider your full financial picture from taxes to education, retirement planning, estate planning and more. They will ensure your planning and strategies work together optimally.
