It’s that time of year again: holiday season. And after all of the get-togethers, late nights, and over-indulgence, many of you will adopt New Year’s resolutions that include everything from giving up vices to getting in better shape. Health will undoubtedly be a common theme, and while that typically refers to the body, it’s also a good time to look at your financial health. The following tips will help improve your finances in 2014:
Get Rid of Debt
“I’ll pay off my credit card/loan/financing debt next month” is a phrase many of us utter, but few follow through with. By retaining a debt, you constantly accrue interest, keeping us in a cycle of unnecessary spending. But this doesn’t have to be the norm. In fact, the Canadian Bankers Association recently pointed out that more than 64 per cent of Canadians entirely pay off their credit card debt each month. That can be you. Why not start taking steps towards paying off your debts in January? When setting your budget for the month, consider what it will take to eliminate your debt altogether and plan accordingly.
Prepare for Emergencies with a TFSA
Even the best laid plans can go awry, so expect the unexpected – especially when it comes to your finances. A simple way to do this is by creating an emergency fund. If you carry debt you are far less likely to start planning for the future. Putting aside some money each month into a Tax Free Savings Account (TFSA) with may help to prevent you from having to go into debt.
TFSAs make your income, interest, and gains tax free. You can use them to save up to $5,000 each year and can withdraw from them anytime. So, should you suddenly need money in a hurry you will be ready.
Save for a Down Payment
Homeownership can seem like a distant fantasy to many Canadians who are just starting out. However, by planning strategically you can make that dream a reality. First, understand the facts. The minimum down payment is 5 per cent, though by paying so little you must take out insurance, which can prove costly. With that in mind, by paying 20 per cent instead you can do away with mandatory insurance payments. That should be your target.
Additionally, if you have an RRSP you can look at the Home Buyer’s Plan; it allows you to withdraw up to $25,000 without being taxed. This essentially acts as a loan to yourself, requiring you to pay back into your RRSP over 15 years. It’s a simple step that can jumpstart your journey to homeownership.
Get the Most from your Retirement Savings
Planning for retirement means taking a very honest look at where you are today: your lifestyle, your income, family status, where you see yourself in the years to come, and what you want to do once you retire. All of these factors play an important role in how you save and invest for those post-career days. Estimates show that an average couple spends about $50,000 per year once retired. That can sound daunting, though there are a number of invaluable resources at your disposal. For instance, if you have worked most of your life, you can expect the Canada Pension Plan (CPP) and the Old Age Security Program (OAS) to provide approximately $30,000 annually.
As always, your ability to save will be directly affected by the debt you carry, the interest you pay, and, of course, the surprises you encounter along the way. Whatever your retirement goals, plan to save more, spend strategically and, most importantly, start today.
How will you improve your finances in the New Year?