Six Ways to Keep Your Financial Resolutions All Year Long
With the start of a new decade, you may have made some significant financial resolutions on January 1. Here’s how to stick with them, and protect and grow your wealth in 2020.
If you made a New Year’s resolution this year, it likely had something to do with your physical or mental well-being: work out more, eat better or perhaps to meditate every day. But money may have also been on your mind; many people pledge to spend less and save more as the new year dawns.
What are your odds of success?
Unfortunately, not very high. According to recent studies, 80% of New Year’s resolutions fail, with most being abandoned by mid-February.
Given that we’re into late January, at this point you might be starting to waver from your financial resolutions. If so, we’ll help you make a quick course correction with six strategies for growing—and protecting—your wealth in 2020 and beyond.
Growing your wealth: 3 strategies
1) Break it down. The number one reason why so many resolutions fail is that they’re too vague, with most people vowing to simply spend less and save more.
However, you can give yourself a much better chance of success if you go one step further and put some numbers behind your commitment. Let’s say, for example, you resolve to put 10% of monthly income into your registered retirement savings plan (RRSP) or tax-free savings account (TFSA) (if you have enough contribution room).
The effect of compounding interest plus any gains in the market, depending on how you invest the contribution, can have a dramatic effect on the overall amount you will have saved over the years.
2) Put your tax refund to work. Expecting a tax refund? You’ll take a step toward hitting your 2020 savings goal if you invest it straight away—something only 12% of Canadians do, according to a 2019 study. This way, you won’t simply view your refund as a cash bonus and be tempted to spend it.
Your RRSP is a great place to start.
Here’s why: let’s say you receive a $2,000 refund this May (for the 2019 tax year). If you invest it in your RRSP, you can deduct this amount from your income in the 2020 tax year. That would reduce your tax owing for the 2020 tax year, potentially increasing the size of your refund, which you’d then put back into your RRSP, reducing your tax payable in the 2021 tax year, again increasing the size of your refund, and so on.
3) Boost your mortgage payments. Even though Greater Vancouver home prices softened in 2019, the city is still home to the priciest real estate in the country, with an average price for a detached home of $1,423,500 according to the Real Estate Board of Greater Vancouver.
That’s obviously a challenge for first-time buyers. However, the vast majority of this price appreciation has occurred in the last 10 to 15 years. If you bought a detached home in 2010 for the average price (back then) of $830,000, your mortgage payments may be quite reasonable by today’s standards.
If you’re in that situation, consider increasing your monthly payments. For example, BlueShore’s fixed-rate closed mortgage lets you increase your payment by 15%, once each calendar year. The extra money will come off your mortgage principal, shortening your amortization and potentially saving you thousands.
Protecting your wealth: 3 more strategies
Nothing can throw us off our savings goals faster than a big, unexpected expense. Here are three tips for protecting what you have and building a strong base for growth this year.
1) Check your credit. Your credit report is a cheap, effective tool for heading off costly surprises. Unexpected changes in your credit history can indicate if you’ve been a victim of identity theft, for example.
Also, are you a parent who has co-signed a loan, or perhaps set up a cellphone plan in your name while your child makes the payments? If they miss or make late payments, your credit report will be affected, so it’s wise to take a look every now and then.
Your credit history has two parts. The first is your credit report, which contains information on your loan and credit-card accounts (including those you’ve co-signed), such as when they were opened, balances and whether there is a history of missed or late payments.
The second is your credit score, which boils the information in your credit report down to a number ranging from 300 to 900 and also shows you how your score compares to the rest of the Canadian population. For sterling creditworthiness, you’ll want to be at the higher end of that scale.
You can have your credit report mailed to you for free (or provided online for a charge) from TransUnion and Equifax Canada, the two main providers. There are also ways to get your credit score for free from other companies – just be sure to do your research before providing your personal information to ensure it’s not sold to a third party or is a front for fraudsters.
2) Review your insurance needs. As we wrote in December’s Lifespring Insights newsletter, the dawn of a new year is a great time to review your personal insurance coverage, particularly in the areas of critical illness and disability.
These policies give you a valuable income stream (either ongoing, in the case of disability insurance, or one-time, in the case of critical illness) if injury or illness keeps you off the job. And with the end of British Columbia’s Medical Services Plan premiums earlier this month, you may have some extra cash available to put toward this type of coverage.
3) Make sure your investments match your circumstances. Is your portfolio appropriate for your current financial situation? If you’re younger with a longer time horizon, your portfolio can afford to take on more risk for a higher return.
However, if you’re approaching or in retirement, you have a shorter timespan to make up for any losses. Talk to your advisor about any potentially volatile investments and if you should be looking at more stable options. Now is an excellent time to check in with your advisor to ensure you have the right balance to meet your needs.
Bonus Strategy: Let your advisor help keep you on track
When it comes to making sure you will meet your financial objectives and timeframes, the best place to start with your BlueShore Financial advisor.
They’ll work with you to create a comprehensive financial plan to help you meet your goals, be it to simply save more in the short run or build toward longer-term milestones, like retirement or saving for a child’s education.
In fact, just by setting up an appointment with your advisor, you’ll be ahead of most people: according to a 2018 Leger study, two-thirds of Canadians (and 58% of British Columbians) don’t use a financial planner.
They are missing a vital outside and professional perspective on their finances. And by setting an appointment more than once a year—say in January and in the summer—you and your advisor can regularly review your plan and make sure you’re staying on track to keep those resolutions – and make new ones!
Mutual funds are offered through Credential Asset Management Inc. Mutual funds, other securities and securities related financial planning services are offered through Credential Securities, a division of Credential Qtrade Securities Inc. Credential Securities is a registered mark owned by Aviso Wealth Inc.