Making resolutions for self-improvement is the best way to enter into a new year. The year 2020 has been full of surprises, and the Covid induced lockdowns have compelled people to think about the finances. Financial planning is essential if you wish to live a life of financial stability and freedom. The best way to achieve anything is to set a clear goal and design a plan of action to achieve it. Money management is similar, and you must set financial goals for yourself and devise a plan to achieve them.
Let us look at some new year resolutions that you can take to get started on your financial freedom journey.
#1: Create and Maintain a Budget
Take a resolution to create and stick to a budget next year. Review your past spending habits and understand areas where you have been overspending. Divide your expenses into categories and allocate the amount of money you want to spend in each of the categories. Make sure to include the amount of money you wish to save each month in your budget too.
#2: Manage Debt and Credit Use
Pay your bills on time and avoid paying high-interest fees at all costs. Ensure you do not use more than 30% of your credit limit, as it reflects poorly on your credit score. Take a resolution to be more responsible with your credit card and only use it when needed.
#3: Start a Savings Plan
Paying yourself first is the most significant rule of wealth creation. If you are not saving a part of what you earn each month regularly, you will not grow financially. Take a resolution to save at least 10% of your income each month as soon as your salary arrives. You can automate the process by signing up for a recurring deposit into your TFSA or RRSP. There is no right age to start retirement planning, and you should do it as soon as you start earning.
#4: Eliminate Unnecessary Fees
Unnecessary fees for things like cell phones, streaming services, subscriptions eat away at your wealth. Trim the fat and if you're not using the services, cut the fees.
#5: Prepare for the Unexpected Make sure your affairs are in order ahead of time. If you’re tech-savvy, consider storing inventories and important documents on a portable hard drive. It’s also a good idea to have copies of birth certificates, passports, wills, trust documents, records of home improvements and insurance policies in a small, secure “evacuation box” (the fireproof, waterproof kind you can lock is best) that you can grab in a hurry in case you have to evacuate immediately. Make sure your trusted loved ones know about this file as well, in case they need it.
Risk is a part of life, particularly in investments and finance. Your financial life can be upended by all kinds of surprises—an illness, job loss, disability, death, natural disasters or lawsuits. If you don’t have enough assets to self-insure against major risks, make a resolution to get your insurance needs covered. Insurance helps protect against unforeseen events that don’t happen often, but are expensive to manage yourself when they do. The following guidelines can help you prepare for life’s unexpected moments.
Protect against large medical expenses with health insurance. Select a health insurance policy that matches your needs in areas such as coverage, deductibles, co-payments and choice of medical providers. If you’re in good health and don’t visit the doctor often, consider a high-deductible policy to insure against the possibility of a serious illness or unexpected health-care event.
Purchase life insurance if you have dependents or other obligations. First, take advantage of a group term insurance policy, if offered by your employer. These don’t generally require a medical check, and can be cost-effective to provide income replacement for dependents. If you have minor children or you have large liabilities that will continue after your death for which you can’t self-insure, you may need additional life insurance. Unless you have a permanent life insurance need or special circumstances, consider starting with a low-cost term life policy before a whole life policy.
Protect your physical assets with property-casualty insurance. Check your homeowners and auto insurance policies to make sure your coverage and deductibles are still right for you.
Create a disaster plan for your safety and peace of mind. Review your homeowner’s or renter’s policy to see what’s covered and what’s not. Talk to your agent about flood or earthquake insurance if either is a concern for your area. Generally, neither is included in most homeowners’ policies. Keep an updated video inventory of valuable household items and possessions along with any professional appraisals and estimates of replacement values in a safe place away from your home.