Done with spending? Time to reset your finances for the New Year
Ah, January—the beginning of the New Year and the end of a hectic month of spending. It’s a bothersome month in the lives of many Canadians. Not only does Old Man Winter rear his head, but he’s also holding a hefty credit card bill.
Many blame gifts as the main culprit for overspending, but it’s also trips, restaurants, bars, and other seasonal needs, along with regular monthly expenses, that have many scrambling to bring debts back down to $0.
January’s still a great month for personal finance. Why? Because it’s the beginning of the year and the maximum amount of time before the next holiday season.
New Year personal finance resolutions you can stick to
Planning makes almost anything more manageable. Here are some tips and tricks on making the most of your time until the holiday season takes Canada by surprise (for the hundredth time).
1. Make a dedicated budget specific to each month
A suitable New Year’s financial resolution—or any resolution, for that matter—should be as accurate as possible. Creating a unique budget for every month will increase your chances of financial success throughout the year. It also starts by accounting for the debt you already have, along with your regular expenses and saving.
Every month call for different expenses, so creating a specific budget to each month will give you a clearer picture of what’s expected ahead.
2. Pay off all revolving debt
Revolving debt, such as credit card debt, for example, should always be addressed first. In addition to paying more money in the long run, unpaid credit cards complicate your finances even further.
Paying credit card debt before other debts will put you miles ahead. While credit cards are an excellent spending tool when paid on time, paying your bill late will cost you much, much more than any cashback or points program ever will. Make it a habit to pay off your credit card in full. Usually, this only possible when you have the cash on-hand. You can have that cash available by saving regularly.
3. Maximize the power of TFSAs, RRSPs, HISAs, and GICs
Tax-Free Savings Accounts (TFSAs), Registered Retirement Savings Plans (RRSPs), High-Interest Savings Accounts (HISAs), and Guaranteed Investment Certificates (GICs) all offer exceptional benefits for reaching your savings goals.
TFSAs allow tax-free withdrawals and deposits to earn tax-exempt interest. Placing your money in a TFSA and making regular contributions will increase your wealth for only keeping your money in the right account. That means more money towards a holiday spending budget.
On the other hand, RRSPs do not offer tax-free withdrawals but grant income tax-deductions when tax-time rolls around, Canadians who make regular contributions can earn additional funds on a return. You can get started and reduce your income tax right now, too. The RRSP deadline isn’t until the beginning of March.
HISAs typically offer higher interest, but funds earned inside the account are considered income and, therefore, taxable. These accounts have the potential to make more interest at a quicker rate.
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GICs are inaccessible term deposits. Interest tends to be higher, the more extended the deposit is. A common term deposit is the one-year term GIC. Depositing money into a GIC in January can have a great payout once December comes around.
4. Be realistic
Setting a realistic savings goal is crucial. Many people often fail at saving because of over-ambitious goals. The New Year is an excellent time to calculate how much of your earnings you’re willing to put away over the year.
Keeping a savings goal realistic also allows you to get an idea of how much progress you’ve made over the past year. Start low and increase your contributions once you’ve got the hang of it.
5. Think ahead (for the next holiday season)
Malls and shopping centers are always more crowded the closer it gets to the actual holiday because many of us leave the tedious nature of shopping to the last minute. While we’re all guilty of it, leaving things to the last minute leaves more room for added stress and irrational purchases.
You might want to set a small amount aside each year for “holiday savings.” If you set aside $10 every week from the beginning of January until the end of December, you should see around $520 dedicated to holiday spending.
Purchasing things throughout the year is a difficult task, but easier to work into your budget, especially if you have friends and family who enjoy generic gifts like gift cards.
Last but not least, don’t forget to give yourself a gift when the holidays come around. We might suggest a stress-free and financially stable year. That’s one gift that never loses its value.