You don’t need to make drastic changes to your financial habits in order to create positive change. If you want to improve your finances in 2021, here are 9 small steps to make it your best financial year yet.
Take time and reflect on what you want to achieve first before considering the financial aspect. Goal setting is a process that should reflect your lifestyle and the values you believe in. The money will compliment your goals and help to guide what financial adjustments need to be made.
Level up: Write the goals down and place them somewhere you can see them regularly.
Do you know how much income hits your bank account per month, and what your fixed and variable expenses are? The easiest way to track this is to write it down. Sounds simple, but you may be surprised by what you discover.
Set aside a good 30 minutes of time and gather your bank statements and credit card bills for one month. Calculate your net income (the amount you receive after tax) for a month. Then create three categories: needs, wants, and saving + investing. For each expense, place it under one of the three categories. The final step requires some simple math. Did your income cover all your expenses? Is one category excessively high?
Level up: Complete this exercise using three months of income and expenses to spot spending trends and identify areas where you can reduce expenses or re-direct cash flow.
This is the emergency fund or “cash account” that will help cover unexpected expenses. Life is full of surprises and you don’t want to have to go into debt to pay for it. The target amount to save is about 3-6 months’ worth of your living expenses.
Level up: It can be easy to dip into this account for non-emergency expenses. Transfer it to a high interest savings account like EQ Bank and keep it out of sight to reduce the temptation.
The CRA recently announced that the contribution limit in 2021 is $6000 for the TFSA. If you were over the age of 18 when the TFSA was first introduced in 2009, the maximum cumulative contribution room has increased to $75,500. The RRSP contribution limit has been bumped up to $27,830, or 18% of your income. Both accounts offer Canadians tax-sheltered investment gains that can help accelerate your investment goals. Not sure how much you can contribute? Check your notice of assessment from the CRA.
Level up: Aim to max out your available room for both your RRSP and RFSA accounts in 2021
Setting up automatic transfers is one of the easiest ways to track and manage your money. After you’ve completed your snapshot budget (pro-tip #2), you will know how much to allocate towards your bills, savings, and investments.
Level up: Follow the golden rule and pay yourself first by automating an amount to your investments.
Most people earn enough income to cover their expenses and invest, but they spend without realizing it. Overconsumption is a side-effect of modern-day life. What’s more, technology continues to adapt and make it easier for us to give into the need of instant gratification.
Before you make your next purchase, ask yourself three questions: Do I need this? Do I have something like it already? Will this purchase impact my ability to invest or save for the future?
Level up: Try to go cashless for a week (a month is better) to really bring awareness to your spending.
Having a good credit score can unlock significant savings over time. You will receive better loan and credit card rates which can help with big purchases, like a house. It’s your personal financial health check and shows lenders you pay your debts.
Not sure what your score is? Check out the link here to Borrowell which offers a free Equifax Credit Score in less than 3 minutes.
Level up: Make a plan to increase your credit score in 2021.
Your workplace may have an employer-sponsored retirement savings program. This is the easiest way to kick-start investing by contributing a portion of your RRSP via a payroll deduction and have your employer match your contribution. The employee match program is a part of your income and if you’re not using it, you are leaving money on the table.
Level up: Maximize your employer’s contribution match.
Plan to eliminate debt, starting with high interest credit card debt first. Debt can impact your ability to save or invest for your future, especially when it feels overwhelming. Start by creating a list of all the debts owed and the interest amount associated with each one. Is there a way to reduce the interest rates? Do you have an opportunity to consolidate the debts? Make paying off debt a priority.
Level up: Call the credit card companies and ask to have your interest rate reduced.
Lasting financial habits take time and should be integrated into your daily lifestyle. Like anything else in life, you’ll get back what you put in. Think you need support to help you get there? Consider working with a money coach, like me, to help you get there and make 2021 your best financial year yet.