The new year is traditionally a time of renewal and optimism, a moment to look forward to fresh beginnings and contemplate the lessons learned over the past 12 months. While you plan what’s in store in 2023, you’ll also want to turn your attention to your finances: The past few years have been eventful for many Canadians, financially speaking. If you’re in the mood, now’s the time to see whether, after all the ups and downs, your financial plan is still on track to meet your goals or whether those goals have changed.

And if you don’t have a plan, now may be the time to get one.

Varun Bhagwat, a Senior Financial Planner with TD Wealth, says it’s important to have goals for your money — it’s the first step for all financial planning.

“Without a solid goal, your plan can be vague: You may be saving or investing inappropriately. It’s best to lay down a roadmap with a planner and revisit the plan for periodic reviews,” he says.

For instance, the housing market and interest rate environment have gone through substantial changes in the past year: Many people who had a goal to buy a home — or help their own kids buy a home — may be pressing pause on that decision. Higher interest rates may have pushed others to rethink their investing outlook: Are other investments safer if 2023’s outlook is cloudy? For others, it’s the high cost of everything that’s causing havoc.

“The biggest issue for many has been inflation,” says Bhagwat. “It can really take a bite out of your budget.”

He says a financial plan should be periodically analyzed. Like a fine-tuned car, it could need some tinkering, regular maintenance or a larger overhaul. Here are some of the things Bhagwat says everyone should think about.

Identify your goals

So, does your financial plan need a revision? To find out, Bhagwat recommends starting with a little self-analysis since this is not simply a financial exercise. Consider whether your financial situation changed materially in the past 12 months. Changes might include a job loss or a promotion, a new marriage or a divorce, a new baby, a move, a real estate purchase or paying off a mortgage.

If your circumstances have changed, then you should consider what your household’s cash flow looks like or whether the market volatility has shifted your risk tolerance.

“The last few years have been difficult for a lot of my clients on an emotional level,” Bhagwat says. “Clients have realized that quality of life is so much more important than career success. Health is their biggest wealth.”

He says people should think about whether their priorities are still the same as before the pandemic. Are 2023’s goals the same as 2022’s? Do you still want to retire at 65 or would you retire sooner if you could? Maybe a new financial goal or two has popped up while older objectives have diminished in importance. If you haven’t already done so, write these goals down. This is the first step in creating or updating your financial plan.

Assessing cash flow

The next step is sketching out how you’re going to achieve your goals. It will almost certainly include a household budget. Bhagwat says you may wish to divide your spending between mandatory and discretionary expenses. You may find that the recent increase in interest rates has you spending more on servicing your mortgage or other debts, while higher food prices might have you spending more at the grocery store or in restaurants.

If the difference between what you used to spend and what you’re spending now is significant, you may want to consider cutting out some of your discretionary activities, such as vacations, eating out or entertainment streaming services.

Alternatively, you can also look for ways to boost your income.

If you’ve built up an emergency fund, now may be the time to dip into it. When you can afford to, building up an emergency fund is a good way to give yourself a cushion in case of unexpected life events or financial shortfalls. Bhagwat recommends holding three to six months’ worth of non-discretionary expenses in cash — ideally in a high-interest savings account or a cashable product. Keep in mind that even a high-interest savings account won’t always keep pace with inflation. If you already have an emergency fund, consider how today’s high inflation erodes your purchasing power. You may need to top it up.

Your budget should also include an allocation to savings and debt reduction. One way to ensure self-discipline is to automate monthly or biweekly savings with pre-planned deposits from your bank account to your investment or other accounts.

“Financial planning is not just putting everything in investments,” Bhagwat says. “One of the risk-management strategies we use is to pay off debt, because it’ll help you save on interest costs.”

The value of advice

If you’re in the fortunate position where household debt is under control, you may want to consider how to invest those savings as one of the key elements of your financial plan. This is when it’s a good idea to work with a financial planner or advisor since they can help you build a portfolio that matches your risk tolerance and includes a mix of asset classes such as stocks, bonds and cash or cash equivalents.

As time passes, your advisor will monitor your progress and offer suggestions to help keep you on target with your goals. Depending on your situation, they may suggest tweaking your asset allocation or adjusting your monthly savings rate. As you approach retirement, your advisor can help you further explore your projected income in retirement and how that income will match your retirement goals.

They can also offer an informed second opinion on things you may not have pondered too deeply on your own. For example, they can run the numbers on taking your Canada Pension Plan (CPP) early or late. Did you know, you can arrange to start receiving CPP benefits as early as age 60 or as late as 70? Keep in mind that for most people, the earlier you take the CPP, the lower the pension payments will be.

New year outlook

Bhagwat urges his clients to be realistic about what’s in store for their families in 2023. “Cash flow is very important for the next year,” he cautions. “But we should all be prepared for disruptions. We continue to hear talk of a possible recession.”

Bhagwat advises against making any knee-jerk responses to disappointing investment performance in 2022. That includes becoming too cautious or too adventurous when it comes to your portfolio strategy.

“If investors move out of their aggressive risk investments and move into conservative investments now, that could be detrimental to their long-term plan because, as markets recover from their cyclical lows, low-risk or conservative investments may underperform,” he says.

In this way, investors could essentially lock in their losses, he adds, and it could take that much longer for their portfolios to recover. If you do have losses, consider speaking with your advisor about a tax-loss harvesting strategy: You may be able to lock in losses to offset gains and replace the underperforming investments with similar investments expected to fare better going forward.

Bhagwat says if you have a long time horizon and ample money to invest, this could be a highly opportune time.

“If you have the extra funds, this can be a great time to invest that money. History has shown that when markets have gone down, and you are able to buy assets at a cheaper cost, you stand a better chance of above-average returns in the future.”

Your updated financial plan should take into account all the unique and variable aspects of your own situation and all possible scenarios that are out of your control, like interest rates or the economy.

“It all boils down to seeking professional financial advice,” says Bhagwat, “and making sure that you have the available resources to meet your goals, whatever they are.”