If you’re anything like me, the holidays can be bittersweet. Sweet because you get to spend much needed time with friends and family, bitter because of the damage the season does to your bank account.
Whether it be from buying gifts for others, gifts for yourself (I’m certainly not judging, treat yo’self!) or buying plane rides or bus tickets home, the holiday season can put you in a tough financial spot. Ironic, since one of the most common New Year’s resolutions of being smarter with your money.
So I decide to chat with financial advisor Ryan Moore, of Sun Life Financial to get some tips on how to make 2018 the year you get into financial shape:
Biggest Challenge? Budgeting:
One of the biggest problems people encounter over the holidays is going a little overboard on spending, often resulting in depleted bank account and credit card debt. But Moore says this problem is the result of another: Not budgeting correctly.
“If it’s already after Christmas a little bit too late. The key is really starting now. Starting to plan 2018 Christmas in January is key,” says Moore. “Most people don’t know where their money is actually going right. Keeping tracking knowing what your actual budget is is the first step when it comes to the holiday season.”
Everybody overspends once in a while, but the key to bouncing back from that is knowing where your money is going so you know where to cut back if need be. He uses frequent coffee drinkers and an example.
“Some people say, ‘’I like my three purchased cups of coffee every day’ and that’s fine,” says Moore. “But do you really know how much money you’re spending on that? It’s just sitting down and trying to spend some time tracking every dollar you have going out.”
If you’re not a spreadsheets person, that’s cool. Budgeting doesn’t need to be too complicated. There are actually lots of great apps out there such as Mint that can help you track where every cent is going.
Paying Down Credit Card Debt:
Okay, so planning for next year is great, but what about the mess you got yourself in this year?
Credit card bills and debt are scary things, especially when it seems like it will take a long time to pay off. But Moore says the good news is that is can be manageable if you’re willing to make some sacrifices.
“Don’t make the minimum payments, try to take some bites out of it find places where you are wasting money,” he says. “Every person you ever talk to, they’re haemorrhaging money somewhere that could be used for better purposes.”
While we’re on the topic of credit cards, Moore says it’s important to understand how your’s works. If you don’t know what your interest rate is or other options available to you, go talk with your bank or a financial advisor.
“Make sure you understand what your interest payment is. Sometimes you can switch over to lines of credit and different things like that or talking with some consolidation folks if it gets really problematic,” says Moore.
“Making those small steps when you think you’re over your head sometimes can help more than you think to get your shoulders above water and move forward from there.”
One of the most popular New Year’s resolutions is saving money. People often say you should be saving at least 10 per cent of your income. That’s great if you can comfortably do that, but that’s not the reality for a lot of us. Moore says the key is to start with what you can.
“The simple advice is to start small. Get in the habit of doing it. Get in the habit of making that monthly contribution,” he says. “If you think you can do $50, that’s great. If not, maybe start a little bit under that because things come up.”
Saving any amount is great, especially if you’re just early in your career. But if you’re not sure how much you can or should be saving to meet specific goals you have, it wouldn’t hurt talking to your bank or a financial advisor to figure that out. Everyone’s situation is different.
“It’s a really hard one to nail down. I wish there was a magic number. I wish I could tell you, ‘If you’re this old this is how much effort put away,'” he says. “We don’t know. We do our best to kind of steer people in the right direction.”
Saving For Retirement:
While saving money can be hard, saving money so you won’t have to work when you’re 70 is a whole other challenge.
This is especially true for young people, many of whom are working in the gig economy or working jobs that don’t offer any sort of pension. This leads to many young people being “transient” when it comes to work, switching occupations more often. Combine that with trying to survive as an independent adult on often entry-level salaries, the idea of retiring at all seems impossible for many.
The bad news is that this is the new reality. The good news is that the sooner you start saving, even a small amount at first, the better off you will be.
“Twenty-five dollars when you’re 25 is worth a lot more than $25 when you’re 35 and a whole lot more when you’re 45 and so on,” says Moore. “It’s just getting in the habit and starting young. When you build the habit, you’re going to work towards your retirement.”
When most of us think of saving for retirement, we think about opening an RRSP at the bank. But for younger professionals, Moore recommends holding off on that for a bit. Instead, consider opening a Tax Free Saving Account (TFSA) and wait to open an RRSP for your “higher earning years.”
This way, your money is more accessible, unlike with an RRSP when you’re taxed on every withdrawal you make before retirement. He says with a TFSA, you can still see growth and the money can always be moved to an RRSP without issue.
“[TFSAs] is a lot more accessible money. It still grows. But when we hit those higher earnings that’s when we’ll do the RRSP’s.”
So there you have it. Hopefully, some of these tips to get your finances in order for 2018. May your year be full of happiness, health, and very few bad financial decisions!