How to Keep Your Financial Resolutions this Year
One of the all-time most common New Year’s resolutions is to save more and spend smaller. But about 80 percent of New Year’s resolutions fail by mid-February. You’ve been there, done that.
This year, you can make it happen. The key? Create a plan and then enlist technology to help keep it on track.
Build a budget
They say money can’t buy you happiness, but the feeling of financial security can positively impact your life satisfaction in a big way. And budgeting is the excellent way to get to that point.
Think about your money in terms of three buckets: the functional, the fun, and the future. The functional includes all of the things that you’ll need to cover: bills, a roof over your head, food on the table. The joke is everything that goes above and beyond the practical: dinners out, new jeans, etc. The future includes all of those long-term savings goals you set up in step one. Remember: each $1 you put into that bucket, can turn into $5 dollars (or more) in a few decades when invested.
Set both short & long-term goals
Often, our long-terms savings goals may be decades out. And frankly, our brains have a hard time relating to these goals, because we tend to think about our future selves as strangers. It’s hard to get excited about saving money if you can’t visualize the reward.
Here’s a pro tip: mixing in some shorter-term goals can help you build better savings habits—and give you the incentive you need to keep going. To keep it manageable, include a target savings amount and a deadline. For example, you might decide to put away $1, 000 for a long weekend out of city in three months. That might mean cutting back on day-to-day indulgences, but a weekend away is sure to be more memorable than your daily caramel macchiato.
Once you’re in the habit of spending less, put those lessons towards your long-terms savings to kick your investment contributions into tall gear. After all, when you’re saving for a goal that’s decades out, the growth on that money can compound into a much greater value than it’s worth today.
Give yourself a raise
Want to guarantee a raise this year? Pay yourself first. When you automatically invest a portion of your paycheque, that money can turn into a bigger payout down the road.
To start, create sure to max out any savings matching programs you’re eligible for through your employer. Typically, your employer will set up a group investment account and match your contributions dollar-for-dollar up to a certain percentage of your income. These contributions come right off your paycheque, so you’ll never be tempted to spend that money.
Next, go back to that budget and see if you can afford to make a bigger payout to the “future” bucket every month. Setting up automatic deposits into an investing account each time you get paid is an effortless way to guarantee more money in your pocket by the end of the year.
Remember, New Year’s resolutions are all about improvement, so if you’re already making steady contributions, now might be a good time to turn up the intensity!
Secure a spring bonus
New Year’s Resolutions can be especially hard to keep if it takes too long to reap the rewards. Here’s a carrot: contribute to an RRSP before the March 2 deadline, and you’ll be setting yourself up for a succulent spring bonus in the form of a bigger tax return.
A large spring payout can feel really gratifying. But we’d be remiss if we didn’t remind you that a tax return is not actually free money. In fact, that money is part of your income, and any refund you receive is actually the government repaying you for the interest-free loan that you lent it throughout the year.
If you really want to double down on your financial resolutions, consider investing that return. The average Canadian contributes $5, 400 to their RRSP each year and gets a $1, 620 tax refund. If you keep up with those average contributions and reinvest that refund every year, in 10 years it could add up to enough for a new car. Meanwhile, in 20 years, you would have enough for the downpayment on that lake house you’ve always dreamed of.
Was this article helpful?80 Posted by: 👨 Laura K. McCants
