Turning Over A New Leaf: Sorting Out Your Finances For FallSeptember 3, 2015
When was the last time you took a good hard look at your finances? Fall is the season of change, and if your finances aren’t working for you maybe it’s time for you to shake up your routine, clean up your spending, and come up with a plan to better your bank account going forward.
Getting back to basics with your finances boils down to taking the time to understand your cash flow and establishing a financial goal. Maybe your goal is to buy a house, start investing, pay down debt, purchase your loved-one a dynamite Christmas present, or save for a mid-winter vacation. Whatever it is, the key to getting there is to be honest about your finances and to come up with a realistic plan.
1) Write it down
The first rule of finances is to understand your finances. Make a list of all the places your money is going—rent/mortgage, car payments, car insurance, home insurance, utilities, internet, clothing, coffees, lunches, investments, savings, debt payments, entertainment, etc.—and start to get a feel for what your cash flow actually looks like.
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You’re also going to want to get an idea of when your money comes in and when it goes out. Make a list of the days you expect to be paid and the days you pay your bills to get a better picture of your financial structure.
Having a realistic understanding of what your finances looks like will help you decide where to go from here.
2) Decide what you want
The next step is to decide what your financial goal is—what are you trying to achieve? Do you want to eventually have a portfolio of investments? Buy a house? Put money aside for your children in a Registered Education Savings Plan? Write down your top three goals and come up with an action plan for what you need to do to achieve these goals. Outline any obstacles and think about how you can mitigate these obstacles in the years to come.
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Think about both your short-term and long-term goals. While some may not be achievable in the next five years, it’s also important to consider what you’d like to do in the next five months. You might want to be in Florida by 50, but Mexico by February.
If your financial goal does not seem possible with your current expenditures, then it’s time to get busy budgeting. Our guide to setting your life up on a budget can help you break down your finances to see which old spending habits you can swap out to reach your new financial goals. If buying a house is your goal, this article about getting your finances in order before you sign that mortgage contract will also help.
Having a solid budget is crucial to coming up with a concrete financial plan for the coming months and years. Working backwards will help you understand where you can afford to make changes to reach your goals sooner.
4) The holiday season
Even though the leaves are only starting to change colours, the holiday season will be upon us in no time. Last year, Canadians expected to spend an average of $551 on gifts, $677 on travel and $211 on entertaining, according to a poll that was conducted by the Bank of Montreal. When you’re looking at your finances, you’re going to want to factor in these numbers (or whatever your holiday spending budget is) into your expenditures. Starting your planning now will save you stress come December.
5) RRSPs & TFSAs
RRSP deadline season also looms in the distance. Taking place the first 60 days of each year, RRSP season represents the last two months Canadians have to make contributions towards their RRSPs and have it count towards the previous year’s tax return. If you plan to make extra contributions, now’s the time to start thinking about when and for how much you’d like to contribute. An extra contribution now could pay off come April when it’s time to file your taxes, as RRSP contributions generally reduce the amount of taxes owed.
TFSAs are both an alternative and an addition to the RRSP, and while it won’t give you any breaks come tax time, it can help you save up for that February break down in Mexico.
There is often a debate between which is a better savings option, but to truly maximize your financial situation it might be wise to consider both. The RRSP can help you save for retirement, while the TFSA can be used to save for larger-purchases like a trip or a down payment on a new car.
Getting your finances together may not be as easy as (pumpkin) pie, but it’s definitely something every person should do during these crisp autumn months. An organized budget and a realistic, achievable financial plan will help you take ownership of your finances and get ready for the New Year.
Of course, there is much more to financial planning. For a more detailed and long-term financial plan, you’ll also want to think about your insurance—do you have enough coverage if something were to happen to you? You may want to review your policies with your providers. You’ll want to consider investments and come up with a plan to take a more proactive approach to your retirement savings, if you haven’t already. For this you may want to set up a meeting with a financial planner, adviser or accountant who can help you determine which path is right for you.
You don’t have to wait until January to resolve to take control of your finances. Coming up with a plan now—even if it’s just for the next month, three months, or year—will set you up that much closer for financial freedom in the future.