Five resolutions to get financially fit in 2014
Written by Gemma Karstens-Smith for the Toronto Star
With the calendar now flipped to 2014, many Canadians are taking stock of their finances.
A recent survey from the BMO Wealth Institute shows that about 80 per cent of Canadians set New Year’s resolutions for 2014, and 36 per cent of those resolutions were about personal finance.
Goals about health and fitness were the only resolutions more popular than those about managing money, the survey found.
“Money influences and impacts so many other aspects of our lives,” said Nini Krishnappa, a spokesperson for BMO. “The New Year is an excellent time to turn the page when it comes to your personal finances and establish some goals that you want to work at.”
1. Put it on paper
Financial resolutions will differ based on personal circumstances. But one thing all goals have in common is the need for a plan.
Resolutions, whether they’re about losing weight or saving money, are more likely to succeed if there’s a road map to follow, Krisnappa said.
“A financial plan really increases the chances of you seeing through your resolutions through 2014 and beyond,” he said.
New Year’s resolutions around personal finance should contribute to long-term goals, such as financing children’s education or a goal retirement age, said Tina Tehranchian, a certified financial planner with Assante Capital Management.
Some people think they don’t have enough money to make a financial plan, but that logic is flawed, Krishnappa said. Financial plans provide a blueprint for how a goal can be reached, especially for people on limited budgets.
There’s a lot of free advice available too, he said, from online resources to visiting a bank branch to get advice.
“The resources are there. The help is there. And no one has more to benefit than you as an individual.”
Making a plan quickly after setting a financial resolution is key, said Blair Guilfoyle, a certified financial planner with Guilfoyle Financial.
“All of the sudden it’s going to be February, it’s going to be March, it’s going to be the summer,” he said. “So do it now!”
Guilfoyle suggests people who don’t already have a trusted financial planner ask a few friends or relatives for recommendations.
2. Prioritize your debt
After the holidays, credit card statements can be shocking to look at. But getting a handle on credit card debt quickly is important, said Tehranchian.
She suggests people look at the interest rate they’re paying on each credit card or line of credit, and prioritize paying down those with higher interest first.
“Most of us like to pay down our mortgage and be mortgage free, which is a great goal,” Tehranchian said.
But putting extra money towards a mortgage instead of credit card debt actually hinders instead of helps, she said.
“You’re much better off looking at your over all debt situation and directing the money to the debt where you’re incurring the highest interest cost.”
But she cautioned that long-term interest rates are already beginning to creep back up.
“For people who are interested in locking in their mortgage rates for the long-term, they should act fast.”
Guilfoyle suggests that people put their tax refunds towards their debts, particularly their mortgages.
“By taking that tax refund and not spending it on lifestyle expenses or a holiday, they’re making their amortization period that much shorter and they’ll be that much further ahead,” he said.
3. Make saving automatic
Saving, especially on a regular basis, is key to becoming financially fit, said Guilfoyle.
He recommends people set aside 10 to 20 per cent of their gross income by setting up an automatic savings plan, where money goes into a “tax efficient savings vehicle” such as an RRSP or a TFSA on a weekly or monthly basis.
“(Saving automatically) takes the emotion out of the investment decision, so, regardless of what the stock market or bond prices are doing, they’ll be much further ahead,” Guilfoyle said.
After an automatic savings plan has been set up, it’s important to revamp the contribution when there’s a life event such as a raise, he added.
4. Study your spending
Part of getting financially fit is weeding out extraneous expenses. Tehranchian gets her clients to rethink their cash flow by having them look at their monthly debit and credit statements and categorize their spending.
“Most people think they know what they’re spending, but when they’re asked to put it down on paper, they’re startled,” she said.
Looking for patterns helps people identify places where they could cut back, Tehranchian said.
“You will be able to see holes and plug them.”
While putting spending in perspective is important, Tehranchian said people don’t need to cut all the fun out of their budgets. If you’re a shopper, create a monthly budget for your purchases, and, if you go over one month, don’t buy anything at all the next, she said.
“It’s not a question of not spending, it’s a question of spending sensibly.”
5. Invest wisely
For people who want to grow some of their cash through investing, Hatice Pakdil, vice president and investment advisor with TD Wealth, Private Investment Advice, has some tips.
Anyone who invests needs to have an investment policy statement, based on realistic goals and an understanding of how the portfoilio is structured, Pakdil said. That statement can change over time, with circumstances or life events, but Pakdil recommends reviewing investments every quarter instead of every day, as daily monitoring can lead to irrational or emotional decisions.
She also recommends people keep track of what’s in their portfolio.
“Know what you own and why you own it,” Pakdil said, explaining that some funds and stocks come with risks you may not be aware of.
Being honest with yourself and your advisor about the level of risk you’re willing to take with your investment is essential to investing, Pakdil said, and investors should make sure there are strategies in place to mitigate risks in their portfolios.