I’m not much for New Year’s resolutions, however I am a big proponent of setting realistic goals in order to keep myself on track. And having a blog means that I can publish my goals for all to see, which should help hold me accountable to myself and to our readers.
I was fairly successful in achieving my short term goals for 2010, so hopefully that momentum carries forward into 2011. Here are my short term goals for this year:
Financial
- Buy a New House – I’ve written before about our goal of upgrading our house. We currently live in a two bedroom, one bathroom starter home in Lethbridge, AB. We’ve been here for almost 8 years and now that our family is growing we will need a bigger place to live. We’ve found a floorplan that we love from a local home builder, and they build in a great new community close to where I work. The construction will take approximately 5 months to complete, so we’ll look to get started in the Spring and be in our new house in the late Fall. We want to ensure we have at least 20% of the purchase price for a downpayment, and most of that will come from the equity in our existing house.
- Sell our Existing House – Because of the timing involved with building a house, we will need to put our existing home up for sale immediately upon starting construction. We hope the timing works out with the possession dates, but if not we will have to find some alternative living arrangements until everything gets sorted out with both houses. After almost 8 years we’ve managed to accumulate a lot of stuff, and there are a few odds and ends that need to be repaired or touched up before we are ready to show the house.
- Save $12,000 – As a continuation of last year’s savings goal, I would like to save $1,000 each month. This money will be used as a contingency fund for any additional charges that will inevitably come up in the home building process. I do not want to use the money in our TFSA for anything related to this house upgrade, so saving this cash each month is really important.
Career
- Get a Raise or Promotion – The age of austerity has entered the public sector over the past year, and raises were few and far between. I’ve been in my current position for 18 months now, and part of my 3 year plan for starting a new job is to learn your job in the first year, master your job in the second year, and learn your boss’ job in the third year. I’m half way through the “master your job” phase, and have so far exceeded my targets this year. There is plenty of room for growth within the organization, so if I can’t get the raise that I’m looking for in July, hopefully an opportunity will present itself in another department. In the meantime I’ll keep working hard in my own area while continuing to network with key individuals in other departments to stay on their radar.
Personal
- Do More Family Activities – This past year was challenging as we transitioned to single-income living and focused on getting our budget under control. We didn’t have a lot of time or money to go out and do a lot of things as a family. Now that our daughter is a little bit older we would like to get her involved in some different activities this year that we can do together, like skiing, skating, or swimming. Even though we have a major purchase coming up this year, I don’t want money to stop us from creating some great family memories at this stage in our lives. Besides, there are still lots of frugal ways to spend time together as a family.
Obviously our focus this year is on building our new house. We are building this house with the future in mind and hope to stay there for a long time, and we just want to do it right.
Most people give up on their New Year’s resolutions before the month of January comes to an end, but in this coming year I’m committing to breaking the bad habit of being wasteful. When I think about it, I am wasteful in practically every area in my life so this will be a real challenge for me.
I Resolve To Drastically Reduce My Food Bill
I will only cook as much as the two of us can eat. I no longer have teenage boys at home so I don’t need to make gargantuan meals any more.
Related: How To Save Money On Groceries
If I do prepare a large meal, I will eat the leftovers in a timely manner instead of letting them become science projects in the fridge. I will use up the food in the freezer before buying more, especially meat which always becomes freezer burned if left too long no matter what type of packaging I use.
I will get back to my monthly meal plan and make a thoughtful, detailed list of food I need before going grocery shopping. No more impulse buying.
I Resolve To Be More Conscientious With My Utility Usage
There’s no big mystery here, we’ve all heard it before – turn out the lights, don’t leave water running unnecessarily, turn down the thermostat a few degrees and put on a sweater, and buy more energy efficient appliances if you can. It’s so simple but so easy to forget.
Related: Why Today’s Appliances Don’t Last
I Resolve To Rid My Home Of Clutter
We have way too much clutter. I tend to keep the old item I’m replacing with new for some reason. Why? If it’s still of some use or I can get it repaired, I don’t need something new.
If something is no longer of any use to me, for whatever reason, I need to get rid of it – donate it, sell it or throw it out. I will have a use for everything I buy. No more purchases that still have their price tags attached because I haven’t used them.
I will be on a mission to remove everything except for what I use and/or love, and I’ll be very selective about what I buy and what I accept from other people who are trying to unload their clutter on to me.
I Resolve To Get Organized
I especially need to clear out my desk area, my closets, my kitchen and my sewing room. In the past I have purchased items that I knew I had, but could not for the life of me find when I needed them. Duplicates and triplicates of things I don’t use very often wastes money, not to mention the time wasted trying to find something.
I Resolve To Work On My Bad Habit Of Wasting Time
Unfortunately, I am a huge procrastinator. While I have not let it get me into trouble – I pay my bills on time and meet other deadlines, I tend to put off small chores until they become a burden and then I’m even less inclined to tackle them.
My paid dividends languish in my account until I get around to re-investing them, and I neglect to update my spreadsheets on a timely basis and then it seems too time consuming. I commit to the principles of “do it now” and “chunk it down.”
Related: How To Set Up A DRIP
I know this will be a lot of work for me, but I resolve to take it one day at a time and, if I forget once in a while, I won’t beat myself up. I’ll just begin again until I get it.
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 will – Creating 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.