From spontaneous spender to savvy saver
A new year is the ideal time to get that budget on track, and find new ways to save
If you had a heavy-spending holiday season, racking up credit card debt and overdraft charges as you partied and gifted to your heart’s delight, you’re likely looking to get things in order now the New Year’s here.
While it can be difficult to recover when you’re facing a mountain of debt, the situation can be avoided next year with a bit of planning and discipline beginning now.
“It’s just like a diet,” says financial literacy consultant and bestselling author Robin Taub. “Better to eat in moderation throughout the year than to try to lose excess pounds you put on throughout the holidays.”
Here are some ways to get your personal finances back in shape. Analyze spending It’s essential that you have a full understanding of where all your money is going. “If you think you’re spending $100 a month on entertainment but it turns out you’re spending $400,” says Wade Stayzer, vice-president of sales and service with Meridian Credit Union, “then you’ve got a gap you need to address by shifting your priorities or finding dollars somewhere else.” Take advantage of online tools, like Mint, that enable you to track spending and to set up alerts (via text or email) to notify you when you’re approaching a low balance in your bank account, or overspending in a particular category. Taub recommends drawing up a personal net worth statement, calculating everything you own versus the debt you owe. “Then you’ll really know where you stand.” Make a budget Once you have a good picture of how you spend, it’s time to create a budget, the cornerstone of any sound financial plan. But a budget only works properly if you stick to it. “It’s like going to the gym,” says Stayzer. “Make some progress and it becomes habit-forming.” There are online tools that help you to create a budget. Look at ways to save on monthly fixed costs, such as your cable TV/Internet/wireless package or insurance policies, whether it’s home, auto or life. Shop around and find ways to cut back on your monthly expenditures. “Some things are more negotiable than you might realize,” says Taub. If you’re overwhelmed by all this, don’t be afraid to ask for help. A qualified financial adviser can walk you through your spending plan and ensure you’re being realistic about your budget, and offer tips on how to better handle your finances. Pay down debt High interest credit card debt can be a killer. So paying this off must be your top priority. Try to pay down as much as possible, not just the minimum monthly amount.
Ideally, you should strive not to carry any credit card balance, as interest rates and penalties for late payments are hefty. If you must, look into opportunities to consolidate your multiple credit card debts at a lower interest rate.
Once you’re paid down your credit card debt, Stayzer recommends that going forward you transfer money from savings or chequing accounts once you’ve spent on your cards, especially online, where it can be hard- er to keep track of expenditures. Start saving With debt addressed, it’s time to start saving. The recommended approach is to make regular contributions throughout the year, and the golden rule is to pay yourself first, ideally by setting up automatic transfers to a savings account, like a Tax Free Savings Account or Registered Retirement Savings Plan. “Then you figure out how to live with the money that’s remaining,” says Taub. “But you won’t have the problem at the end of the year where you need to scrape together money for your RRSP, because it’s already done.”
If your company has a pension plan, with matching employer contributions, it’s best to max this out to take full advantage. If you’re setting up a personal RRSP, make use of “roboadviser” services — online platforms that can help you to determine your investing objectives, experience, tolerance for risk, and time horizon, and then create a personalized portfolio for you that’s tailored to you. Earn more You’ve taken your personal finance snapshot and created a budget, but now you’re feeling limited by it. So why not look at ways to make extra money. If you’re a salaried employee, ask for a raise. If you’re an hourly worker, request more hours. “Or some people have side hustles, jobs they do on the side,” Taub says. That side hustle could eventually be turned into a small business, and who knows where things could go from there. To further fatten up your savings account, take Stayzer’s 52week challenge: put away $1 the first week, $2 the second, all the way to week 52, when you’ll have racked up $1,400, and not even noticed.