At the start of each New Year, many Canadians ponder their goals. With the average Canadian’s debt to income ratio now over 170% it’s time to set some workable financial resolutions for your New Year.
Set up a budget and stick to it: Less than 50% of Canadian households follow a budget. Budgets are easy to implement and the most effective way to keep track of spending. List all of your recurring monthly and yearly expenses and start to compare what you’re spending every month to what you’re bringing home after tax. If there’s money left over every month you’re in good shape. If not, you need to start making changes to free up cash.
Set up an emergency fund: Current estimates show 57% of us have less than $1,000 in an emergency fund, to access. Almost 40% of us have no savings at all. If you’re in either group it’s time to start a savings plan. Whether you call it an emergency fund or rainy day fund, ideally you should have enough savings to cover six months of living expenses.
Get rid of debt: With the average Canadian household carrying $2,627 of credit card debt plus another $21,000 in consumer debt, the sooner you start paying down debt the less you’re wasting on interest payments. All too often I run across families carrying credit card balances over every month on one or more credit cards not realizing what it’s costing in interest. I have mine set up to auto pay every month so that I never pay any interest, plus, with prudent timing of major purchases, I get to save even more interest.
Get started with saving for your retirement: Few of us can live on the CPP and OAS pensions today. Think what your cost of living expenses will be in 20 to 40 years from now. Almost 50% of Canadians have minimal or no retirement savings and are unaware of the financial risks they are facing once retired. To put this in perspective, let’s compare the different amounts you would have by age 65 by starting saving $200 a month at different ages.
At age 25 – $622,000, 30 – $413,000, 35 – $272,000, 40 – $175,000, 45 – $110,000, and at age 50 – $65,000, or another way to look at this, if you save $200 a month for 40 years you will have saved over $600,000 with only an initial investment of $96,000. Think of how big this number would be if you saved 10% of what you earned every month?
Figure out how to stop wasting money: We all waste money in our own ways. The gym membership we rarely use, video streaming service we never watch, all those groceries we throw out etc. This is where developing a budget helps. There are numerous apps that make tracking where your money is going very easy. Make the start of 2018 the year you take control of your finances. If you need help, seek out a trusted financial professional to help set up the process. One of the easiest ways to save money is to have it auto debited from your bank account every month before you have a chance to spend it on something else.
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