Posted on Wednesday 18 December 2019
As the year winds down to a close, it’s time to start thinking about what you want to accomplish in 2021. That’s right: it’s time to start thinking about your resolutions! A new year is the perfect time to re-evaluate your personal finances and look for opportunities to improve.
Focusing on boosting your financial health is a great way to start the new year off right and set yourself up for success down the road. But it’s hard to know where to begin, especially if you have multiple goals that you want to accomplish (Like going to college and becoming the best male figure skater)—or aren’t even sure what your goals should be.
That’s exactly why we’ve put together a checklist to help you get your finances in order for 2021. Take a look below for a step-by-step overview of how to set yourself up for financial success in the new year.
Maybe 2021 is the year that you want to pay off your car loan, buy your first home, boost your credit score, or knock down some of those old credit card debts. Or maybe you want to start an emergency fund so that you are better prepared for any surprise expenses that may pop up in the coming year. This is great financial advice for people in their 20s or anyone for that matter.
No matter what you goal may be, the first—and most important—step is to write it out. Make a list of anything that might need improvement in your personal finances. It doesn’t have to be anything formal, and there are no rules on whether you want to make a spreadsheet, open up a Word doc, or use old-fashioned pen and paper.
Writing will help organize your thoughts and can help you sort through big, long-term goals and smaller, short-term goals. And the best part about writing it down is that it helps each goal really sink into your subconscious, increasing the likelihood that your financial resolutions will stick all year long.
Whether you have two lines of credit or twenty, you can’t start working on building your financial health until you fully understand exactly what you owe, what you are paying, and how much interest you are accruing. (And if one of your financial goals is to start chipping away at those debts, this is a natural first step).
Once you have your list, there are a couple of different ways that you can start paying that debt down. The first is called the snowball method, which looks like this:
Alternatively, you could use your list to start tackling debt with the highest interest rates first, instead of the smallest balance. That’s a good way to focus on decreasing your overall interest payments and improve your financial health over the life of each loan. At the end, if you have a little bit of debt left, you can get rid of it right away by using payday loans in Canada.
Credit cards can be a fantastic asset—after all, they build your credit score and help keep that number healthy over time. But they can also quickly become a serious financial pitfall if you aren’t using them properly. Many Canadians tend to use credit cards as a fall-back to help bridge the gap from one paycheque to the next and then find themselves in a cycle of late payment fees and high interest rates.
In 2021, make a commitment that you will not fall into the trap of using your credit card as a financial crutch. Spend only what you can pay back within a reasonable period of time, and make more than the minimum payment—on time—every month. This will ensure that you are set up for success when using credit cards over the long term.
If you need help making payments between paycheques, you may want to consider getting a short-term loan instead of a revolving credit card account. You’re much less likely to put yourself into a cycle of debt if you can only use your funds once (and with shorter terms, you’ll be much more motivated to pay that debt off sooner).
Now that you have your goals in order and you have a good understanding of where your debts are, it’s time to start getting into budgeting. Even the most wealthy of people understand the value of using a budget and sticking to those guidelines—it’s how the rich are able to stay rich over the long term.
Budgeting can be as simple or as complex as you want it to be. If you want to have 24/7 access to your financial health, you might want to try downloading a budgeting app. These apps will connect to your bank accounts to give you real-time updates on your spending, using categories like Groceries, Entertainment, Clothing, and more. It’s a great way to get a holistic view of your finances—and all with minimal effort on your part. Just sit back and let the app do all the calculating for you!
If you prefer a more hands-on approach, you can try using the 50/20/30 rule. You’ll have to split up every paycheque into percentages (and stick to it) in order for this one to work. Put 50 percent of your paycheque towards the necessities, like housing, groceries, water, and utilities. Put 20 percent towards saving and paying off debts, and let the remaining 30 percent go towards entertainment, dining out, and trips.
Budgeting is the best way to ensure that you stay on top of your spending habits and know exactly how much money is coming in, how much money is being spent, and exactly how you are spending it.
If you want to take some steps in 2021 to improve your financial health, your spending habits are a good place to start! Take a cold, hard look at the way you spend your money on the basic items and look for ways to save. Here are some easy places to start:
It’s hard to save money, especially when you are living from paycheque to paycheque. But at this point in your checklist, you’ve started to get a good understanding of how you can start spending your money better and free up some extra cash.
It’s how you allocate that extra cash that makes a difference when it comes to improving your financial health. If you aren’t intentional about your saving, it’s easy to see the extra money in your bank account and spend it on another round of drinks, a night out at the movies, or that sweater you’ve been eyeing.
Instead of letting that extra money sit in your bank account, make it a point to pay yourself first and transfer money into your savings. Decide on a certain amount that you’re going to save each week, and make that transfer—no matter what. And once that savings has been transferred out of your checking account, it will be much easier to adjust the rest of your spending.
Don’t fool yourself by thinking you can wait until the end of the month to do this, either! Keeping that cash in your checking account makes it far too easy to spend, so don’t even give yourself the opportunity to spend it elsewhere.
When is the last time that you looked at your credit score? If it’s been a while, now is the time to start looking at your credit score on a daily basis. As you move into 2021 and look to cross off big goals like buying a car or a home, your credit score is going to be crucial. Even if your financial goals are smaller, you’re going to need a solid credit score in place to set yourself up for success later on.
The major credit reporting bureaus will provide a free copy of your credit report every year, which is a good place to start when it comes to understanding the basics—but you need to be able to monitor your credit on a consistent basis in order to see progress over time.
Your report will show you if you have any accounts in collection, whether your accounts are in good standing, how many on-time payments you have made, and more. If something isn’t right, you’re going to want to know about it as soon as possible so that you can file a dispute—and if you wait an entire year, the damage may already be done.
There are tons of small, simple errors that could be affecting your credit. Some of the more common mistakes include:
There are two ways that you can get 24/7 access to your credit report. First, if you have a credit card that offers free credit monitoring as a service, you can use them as a resource. Second, you can sign up for a free account with a monitoring service to get a full picture of your credit status at any time. Make it a habit to check your credit score every week to stay up to date with any changes.
This step is all about making sure that you are planning for the future while giving yourself every tax advantage possible. Contributions to your retirement account are tax-free, meaning that you can omit those funds from your yearly income taxes—which means you can get a little bit of relief once tax season rolls around.
Whether you have a Registered Retirement Savings Plan (RRSP), a Registered Retirement Income Fund (RIF), or a Tax-Free Savings Account (TFSA), now is the time to take a look at your contributions and make a commitment to put more money away towards your retirement.
And if you don’t have a retirement account set up yet, this is your cue: make 2021 your year to start.
It’s hard to stay consistent with practicing good financial management—and we’ve all had our off years where we know that we could have done better! If 2019 wasn’t exactly your year for being in good financial health, now is the perfect opportunity to start doing things differently. Use this checklist as a way to identify where (and how) you can improve to make 2021 your best year yet!