20 Simple Steps To Improve Your Finances Next Year

Like many people around the holiday season, you might be reflecting on ways to improve your finances next year.  Health and finances make up the majority of the New Year’s resolutions, yet many people fail to stick with their new goals and after just a few short weeks end up right back where they started.

But improving your financial situation doesn’t have to be painful, you just need to take the proper approach.

Related: How I Save Money

This is not where I’ll tell you to contribute the maximum to your RRSP and TFSA portfolios, while building up a six month emergency fund and pre-paying your mortgage at the same time.  You’re not going to hear how to pay off your credit card debt and student loans while saving for a down payment on a house.

Not that these things aren’t important, they’re just not tasks that you can realistically accomplish over the course of a few months.

Below you will find solutions that will immediately help improve your finances.  I know because I’ve taken every one of these steps in my own life over the past 18 months while we transitioned to single income living.

Through all of this we managed to increase our net worth by nearly $50,000 this year.  Apply these steps in your own life over the next few months and you’ll be well on your way to a complete financial makeover.

20 Simple Steps To Improve Your Finances Next Year

Your Mortgage

Switch to a variable interest rate – According to a popular study in 2007 by Moshe Milevsky, consumers have been better off with a variable interest rate 88% of the time over the last 50 years.  And if you factor in the last few years of ultra-low interest rates, the variable rate would likely win out 96% of the time.

Related: The Pros And Cons Of Going Short With Your Mortgage

Yet consumers chose the 5 year fixed rate option 75% of the time, often citing the “sleep at night” factor in their decision.  Wouldn’t you sleep better at night knowing you’re potentially saving thousands of dollars over the term of your mortgage?

True, there isn’t much room for interest rates to go any lower, but as long as the banks are offering discounts off of prime rate, consumers should still consider taking advantage of the variable rate option.

Switch to bi-weekly payments – By switching your mortgage payments to bi-weekly instead of monthly you will effectively be making an extra month’s worth of payments each year.  This will save you a few years and thousands of dollars worth of interest over the life of your mortgage.

Just be careful to properly forecast your income and expenses during the 2 months each year that you have 3 mortgage payments to make instead of 2.

Your Career

Be better at your job – Separating yourself from your peers in the eyes of your employer is crucial if you have any aspirations to advance within your organization.

The key to getting promoted is to excel at your job.  This doesn’t have to involve sucking up to your boss or working 70 hours a week.  By volunteering to spearhead a new project, or taking the initiative to improve efficiencies within your business unit, you can show your superiors that you have potential to move up the corporate ladder.

In any organization there are campers and there are climbers.  Be a climber, especially early in your career.  Think of each stop along the way with a three year plan in mind.  In year one, learn your job.  In year two, master your job.  And in year three, learn your boss’ job.

Ask for a raise – Nothing will help improve your finances like being able to increase your salary.  Maybe there are no opportunities for advancement at the moment, but that shouldn’t stop you from making more money in your current role.  Sometimes all you need to do is ask.

Most employers are afraid of losing their star performers, but they’re not just going to hand out large raises to everyone.  If you’ve proven yourself to be a valuable component of the team, what’s stopping you from asking for more money?

Your Money

Use a budget – Living on a personal budget is one of the most effective ways to gain control of your finances.  You can’t possibly begin to reduce your debt and build your net worth unless you know exactly how much money is coming in and how much money is going out.

Budgeting is about tracking your monthly income and ensuring your expenses stay within your limits.  Without a proper budget in place, you take the risk that you are overspending and not taking into account future expenditures.

Create a forecast of income and expenses – Using a forecasting tool will complement your existing monthly budget and help to better prepare you for any unexpected expenses as well as variable costs in your daily lives.  It’s not complicated once you get it set up.

I just use an Excel spreadsheet with my yearly forecast on one tab, and then individual tabs to track my monthly budget.

Your Credit

Set up a Line of Credit – If you have your credit cards paid off and your spending habits under control, there’s no immediate need to try and sock away six months worth of expenses for your emergency fund.  That can take a really long time to become fully funded.

I recommend that you open up a line of credit with your bank and use that in the case of any real emergencies (notice I said “real” emergencies, which does not include any Boxing Day blow-out sales on electronics).

In the meantime you should set aside a comfortable amount of money into a savings account each month, which will eventually become your cash emergency fund.  Three months worth of expenses is plenty.

Practice the art of delayed gratification – A common budgeting practice is to annualize the cost of your small indulgences and vices.  You can see that your daily specialty coffee comes to $1200 and your weekly carton of cigarettes cost you $4000, which could be the start of an investment portfolio or put towards another goal.

But it’s really difficult to see the big picture – it’s so far away and one drink (this time only) won’t make much of a difference.

Your Investments

Dump your advisor and sell your mutual funds – If you have an investment manager, they likely have you invested in mutual funds, which are generating ongoing fees for themselves.  Most mutual funds lag behind the market since they have to pay these excessive fees to manage the fund and your money.

After 25 years, a 2.1% Management Expense Ratio (MER) will eat away at 39% of your RRSP portfolio.  Most financial advisors are not looking out for your best interests, how could they when they get paid to put your money into inferior products that pay them commissions?  Check out this article on mutual funds vs. ETF’s.

Open an account with a discount broker – Do it yourself investing is not as difficult as people think.  Open up an account with a discount broker and purchase Canadian dividend stocks that have a history of growing their dividends.

There are only two dozen or so Canadian dividend growth stocks that you need to follow.  They represent a selection of financial, retail, utility, pipeline, communications, and transportation companies (some others).  Pick one when it’s value priced and purchase a worthwhile amount.

Use yield, P/E ratio, the Graham number to determine value.  Here’s a website that does it for you – http://www.ndir.com/SI/strategy/tse60.d.shtml

Your Children

Open an RESP – It may seem daunting when you see what tuition may cost in eighteen years but an RESP (Registered Education Savings Plan) is a great way to start saving for your child’s post secondary education.  The Education Savings Grant of up to $600 annually is a nice bonus to help increase your returns.

If you are eligible for the Child Tax Benefit you can start an RESP with the Canada Learning Bond of $500 to begin with and $100 a year until your child turn 15 years of age, without even putting a penny of your own money towards it.

With the cost to finance education continuing to rise, getting started early can make a big difference.  Check out The RESP Book for more information.

Teach your children about money – Since our education system is lacking in any type of personal finance lessons in school, it is really important to give your kids a good head start on becoming financially responsible.

Most of these lessons will come from the way that their parents live their lives (frugal or extravagant).  If your children receive an allowance or have a part-time job, teach them the principles of saving 10% of what they earn.  It will go a long way towards shaping their financial future.

Your Risk

Make a willCreating a will is a fairly straight-forward and relatively inexpensive process, yet less than half of Canadians have one and a large proportion of Canadians die without ever making a will.

You can draw up a conventional will yourself, or have someone (a lawyer) prepare one for you.  You must sign and date your will to make it valid.  Depending on your province of residence, your signature must be witnessed by one or two people.

There’s also a Living Will, which specifies the nature of medical treatment you wish to receive (or not receive) if you become incapable of communicating your own wishes.  Not all provinces have laws making living will’s binding.  These can be complicated, and are best drawn up with the help of a legal advisor.

Buy Disability Insurance – If you are young and healthy, you probably haven’t given disability insurance a second thought.  But check out these statistics.  At age 30 there is an almost three in one chance that you will become disabled at least temporarily (90 days or less) at some time before you die.  After age 50 the odds are two to one.

Personal disability insurance provides you with an income in the event that an accident or long-term illness prevents you from earning a living.  If you couldn’t survive financially without your income, or if you have dependents, you will need disability coverage.

Your employer may provide disability coverage as part of a group benefits plan but not all companies do, so go and find that benefits package you received and check it out, or contact your benefits administrator.

Your Rewards

Use credit cards and rewards cards to your advantage – If you can use credit cards responsibly you can really take advantage of some great rewards and perks.  Find a no-fee credit card that offers rewards that work for your lifestyle, and charge as much of your monthly expenses as possible to it.

There are plenty to choose from, with perks ranging from free flights and hotels, to free groceries and gas, or just getting cash back.  Even better, you can double-dip with your favorite loyalty card such as Aeroplan or AirMiles, and then cash those points in for even more rewards.

This year we cashed in over $200 in groceries from our credit card and redeemed Air Miles for $300 in gas.  You’re going to spend the money anyway, you might as well get something back.

Just remember to always pay off your credit card balance in full each month and never purchase something that you can’t afford, just to claim more points.

Related: MBNA Smart Cash MasterCard Review

Take advantage of employer matching plans – Many organizations have programs in place where they will match your RRSP contributions up to a certain amount each year.  This is a great perk that not a lot of employees take advantage of, which effectively doubles your rate of return.

Contribute the maximum amount to take advantage of your employer’s matching program.  For example if your employer matches your RRSP contributions up to 2% of your salary, and you make $50k, you’ll need to contribute $1,000 towards your RRSP to maximize your employer matching plan.

Your Transportation

Drive less – Can you get by with only one vehicle?  If so, you can save hundreds of dollars a year on insurance, gas and maintenance.

If you can’t manage to live with only one vehicle, at least make an effort to walk more and to take public transportation whenever possible.  It’s not the most convenient way to get around, but it will save you money and it’s good for the environment.

Speaking of the environment, do you really need to warm up your vehicle for 10 minutes before heading off to work in the morning?  Studies have shown that it only takes 30 seconds for your engine to properly warm up, even on the coldest of days.

Pay less for insurance – If you’re like most people, you’ve been with the same insurance provider for years and haven’t bothered to shop around for insurance rates.

You should review your policy annually to see if there have been any changes in your situation that will lower your premiums.  Bundling your policy with your home insurance, increasing deductibles, removing collision coverage on older vehicles, and a good old fashioned clean driving record will all help you save on auto insurance.

Your Life

Stop eating out – One of the best ways to improve your finances is to create a meal plan.  Knowing in advance what you are going to eat for dinner can save you from many impulse visits to your favorite restaurant or fast food chain, as well as those last minute trips to the grocery store when you don’t have anything left in the cupboards.

Related: How To Save Money On Groceries

Start by making a dinner list.  I recommend matching the length of your list to your pay day cycle.  If you get paid weekly, plan for 7 dinners, if it’s bi-weekly plan for 14 dinners.  Put your list up on the fridge, this will help you remember to take the chicken out to defrost.  Take stock of what’s already in your fridge, freezer, and cupboards.  From there, use your dinner list to make your shopping list.  Remember to buy in bulk to save money.

Make money on the side – Some people can turn their hobbies into a lucrative side business, but it doesn’t have to earn you thousands of dollars a month to be worthwhile.

Related: Ways To Make More Money

Maybe you like picking up bargains at flea markets, pawn shops or garage sales and can sell the items on eBay or Kijiji.  Or perhaps you have a knack for photography and can pick up a few gigs doing weddings or outdoor family pictures on the weekends.

A good writer can earn a few bucks by starting their own blog or freelancing for a magazine or small newspaper.  Making money on the side by doing something you love can be extremely rewarding.

So there you have it, 20 simple steps to improve your finances next year.  Put these solutions into practice one-by-one over the next few months and you’ll be on the right track towards your financial freedom.

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  1. Sustainable PF on December 29, 2010 at 11:55 am

    Interest rates in Canada are due to rise w/ most experts believing they will go up 1-2% over the next year. Locking into a sweet 5 yr term now, imo, is the smarter way to go. Agreed on the bi-weekly payments tho!

    Totally agree on the investment advice – the planner is NOT REQUIRED and the discount brokers sure are cheap (QuestTrade!).

    Actually, aside from the variable rate mortgage, I agree with this entire list!

    • Echo on December 29, 2010 at 2:39 pm

      Thanks SPF!

      As for the variable interest rate debate, for the past two years people have been making the argument that “this time” the fixed rate will be the better option. It hasn’t been so far. Locking in for 5 years is a long time (IMO), when the reality is nobody knows what will happen even 1 year from now. I’d much rather take the savings now and wait and see what happens while keeping my negotiating power.

  2. Steve Zussino on December 29, 2010 at 12:04 pm

    Making a will the next month is the most important step for me to do.

    #1 action item I would recommend to people is to do a variable rate mortgage – usually pays off.

    • Echo on December 29, 2010 at 2:42 pm

      Steve, good luck with making your will – are you working with a lawyer, or will you do it yourself?

  3. The Passive Income Earner on December 29, 2010 at 7:32 pm

    I definitely could improve on my eating out … It seems to be a balance between time and money … I can’t buy time unfortunately.

    @Sustainable PF
    If you can get a good rate for 3 years, I would look at 3 years before 5. It’s so much easier to do something else like a blend and extend. The rule of thumb is that you can get a 1.5% discount on the advertised rates. A 3 year term should beat a 5 year term and not lock you in for 5 years. I will wait for a few more increases before starting to lock on a fixed term.

  4. Financial Uproar on December 29, 2010 at 9:20 pm

    Nice list Echo! I’m also looking to curb my eating out budget in 2011, so I started tonight by buying some frozen “cheesy shells”. They were 3/$4. Luckily for me (and my stomach) I only bought one. Do you think your wife would be willing to make me dinner every night?

    • Echo on December 30, 2010 at 9:13 am

      @Financial Uproar
      Ahh, the bachelor days 🙂

      It is hard to cook for one, even for two sometimes. We had the most success after our daughter started eating what we ate…we figured we better start cooking more and eating healthier foods.

  5. Personal Money Management Tips on December 30, 2010 at 4:58 am

    I think the hardest part for most people will be cutting down on dinner and lunch outs – I know it has been, and still sometimes is, for me. This usually is a big chunk of money, that can easily be saved. I generally take advantage of those credit card reward points though, those are too good to pass up.

    • Echo on December 30, 2010 at 9:17 am

      Thanks for your comments. It can’t hurt to give the meal planning a try for a month and see if it works for you. One tip is to make a bit extra so you have leftovers for lunch the next day.

  6. DoNotWait on December 30, 2010 at 9:51 am

    This is a great list and I agree with almost all of it, except for the financial advisor. Your advice is good for the persons who have a minimum financial knowledge in investment. Maybe many of your readers do, but I would not recommend that as a general advice.

    • Echo on December 30, 2010 at 9:59 am

      Thanks for your comment. Do it yourself investing is not for everyone, but it has become easier over the years and in my opinion is worth looking into if you don’t want your portfolio eaten away by fees.

      If you think you need financial advice, check out Boomer’s post on that subject – https://boomerandecho.com/2010/12/do-you-need-financial-advice/

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