At the beginning of the new year some folks want to get healthier, others make their homes spotless and still others settle for a polar bear swim in icy waters. But if you want to kick off the new year with a bright financial outlook, why not give yourself a clean slate and fix any money problems you might have?
“New Year celebrations give us a chance to reflect on where we are in our lives and what our wishes are for the next 12 months,” says Bernice Marien, a High Net Worth Planner at TD Wealth. “You might have resolutions to eat better or get more sleep but we should also consider our financial well-being as well.”
You may think of this year as special. As we enter a new decade, some of us will take the opportunity to look back at our lives to see where we’ve been and where we might journey in the years to come. “It’s the same with your money,” says Marien, “everyone should gaze back on the past decade to see how their finances have grown and perhaps have become more complicated. We can also look forward, beyond the horizon, to the time when our money can be making our life goals a reality, such as buying a home, sending a child to university or retiring in comfort.”
Marien offers a checklist of items that you can consider looking at and shows us how it can help make the year a successful one for your money.
1Knock down high-interest debt
Especially after the holiday season when gift-buying might get out of control, many of us find that our January credit card statements are eyebrow-raising. Fortunately, while it may not be easy to pay the bill in one shot, there are some methods available to help lower the cost of that debt, Marien says. Although everyone’s financial situation is different, one option to consider is getting a line of credit — with a lower interest rate — to pay off high-interest credit card bills. When the weight of those high-interest rates are off your back, you may want to think about paying off that line of credit as well.
2Make a new spending plan
If falling behind on credit card payments is a constant predicament, there may be a bigger problem that needs fixing, says Marien. More money going out than coming in could indicate some trouble living within your means. The remedy can include (big breath) making a budget, tracking where the money is going, evaluating what spending is essential and what isn’t. She says it can go a long way to turning your cash flow from negative to positive. Even if it means big lifestyle changes — like downsizing your home — it’s better to keep yourself financially fit than to fall into an abyss of debt.
3Decide what you are saving for
If you have been diligently saving money in your Registered Retirement Savings Plan (RRSP) and Tax Free Savings Account (TFSA), don’t forget you should have an objective in mind for all this saving, says Marien. So even if retirement isn’t imminent, make a plan for when you want to retire, what you think retirement looks like and whether you think you’re on track to meet your goals. Same with leaving your kids money in your estate: Is this just wishful thinking or are you on track to make it happen? Plus, don’t forget to compare notes with your spouse or partner on this. Your idea of the future may not jive with what your better half is thinking — better to start discussing it now rather than later.
4Resolve to pay less tax
It may come as a surprise that there are steps you can take to help reduce the amount of tax you owe. For most of us, that means being vigilant about tax credits and deductions, and observing whether any recent life changes now make you eligible for different tax treatment. Did you know, for instance, if you support a spouse, common-law partner or a dependent like an elderly parent with a disability, you may be entitled to the Canada Caregiver Credit?1 It also makes sense to keep up with any changes to tax credits that have been recently introduced.
5Dust off that Will
It’s a good idea to check in with your lawyer about your Will every three to five years, says Marien because goals and intentions may have changed over that time. As well, if you’ve had a major event in your life — a second marriage, a new grandchild, the sale of a home — it may mean an ensuing revision to the Will. While you are making sure your Will of five years ago still makes sense today, also look at who will be managing your estate. Do you think your executor is still up to the job or should it be someone who is young enough to be energetic and competent when you pass away? Also, double-check that your beneficiaries for your RRSPs and insurance policy still fit into your overall plan.
6Have a money talk
While you are deciding on a financial plan, writing your Will or making an estate plan, make sure you communicate your intentions clearly to those who will benefit, usually your children. Not doing so can contribute to family conflict if people have different expectations about their parents’ money, if they think one sibling is being treated more favourably or if unexpected family secrets come out of the closet that tangle up family inheritances. This can be especially true for second marriages or blended families. Talk to people individually and let them know what the deal is and why. It will go a long way to sooth family feelings (and avoid expensive fights in court) when you’re gone.
7Revisit your emergency strategy
If you feel you have your finances in satisfactory shape, you may wish to consider how you would handle a sudden emergency, such as the loss of employment or an extended illness. Having an emergency fund, for example of about three-months’ salary, could see you through the emergency without having to do something drastic such as selling property or taking the first job that comes along.
8While you're at it, check your insurance
As part of the overall financial plan, check to see if your life and critical illness insurance coverage is still meeting your needs. If you are newly retired and no longer under a company plan, you may wish to top up your coverage. If you have a sizable estate or a business, think about how insurance can play a role as part of your estate planning as a tax strategy when dealing with probate fees.
9Make a list of upcoming deadlines
Whether it’s liquidating funds in a Registered Education Savings Plan (RESP) for a child’s university tuition, deciding whether to delay your Canada Pension Plan or withdrawing funds from your Registered Retirement Income Fund (RIF), your finances are governed by deadlines and usually it’s bad news if you miss them. Familiarize yourself with upcoming deadlines and prepare your finances accordingly so that you never penalize yourself accidentally.
10Get a checkup
Finally, you should step outside of your situation and get an objective view of what state you and your finances are in. This helps show any gaps in your thinking and keeps you from putting your head in the sand if your problems are making you feel powerless. It means making a visit to a lawyer or accountant to see exactly where you’re at. Even if you think you’re in good shape, you might have a tiny blind spot — forgetting a tax credit or not maximizing your RRSP — that could hurt you over the long term.
- “What is the Canada caregiver credit?,” Government of Canada, Feb. 12, 2019, accessed Dec. 16, 2019, https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/deductions-credits-expenses/canada-caregiver-amount.html ↩