It’s a “new year, new you.” Are you ready to hit the ground running in 2018? Last week we took a look at 3 Good Financial Habits for the New Year. Updating your budget and net worth statement, reviewing your will and insurance needs and reviewing your debts are all great ways to start the year off right. Since the year’s still young, we thought it would the perfect time to look at three more good financial habits for 2018 to make sure it’s your best year yet.
Examining Your Investment Portfolio
Are you the type of person who has an “out of sight, out of mind” attitude when it comes to your money? While regularly saving money is a good habit to develop, it’s also important to figure out the best place to stash away your money long-term. Some people with memories of the financial crisis still fresh in their mind invest all their money in safe places like GICs and high-interest savings accounts. While that may be good for short-time financial goals like saving for a vacation, if you’re saving for retirement this way, you could be at risk of outliving your money. The new year is the ideal time to sit down with your financial planner and see if your investments are a good match for your financial goals. It’s better to make adjustments to your savings habits now than find out your money in retirement isn’t enough. Furthermore, it can be tempting to think the roaring stock market is bound to continue as it has over the last few years but this could be far from the truth. It would be wise to ensure that your portofolio is properly positioned to withstand any major downturn. The question isn’t if there will be a major downturn but when it will start to occur. I believe a major correction is imminent the question is, which economic event will trigger it?
Establishing an Emergency Fund
Are you ready for a financial emergency? Big expenses often come up when we least expect them. Your car could break down, you could lose your job or your roof could start to leak. Wouldn’t you rather be prepared ahead of time than going into debt to pay these one-time surprise expenses? Most financial planners recommend socking away three to six months’ living expenses in somewhere safe, such as a high-interest savings account.
So, what if you don’t have an emergency fund? Don’t throw up your hands in despair. You can always start one. The simplest way is to make your savings automatic. Figure out how much money you’d like to save. Then, whenever you get paid, have some money automatically go to your savings account earmarked for your emergency fund. It doesn’t get any easier than that!
Building your rainy day fund is only half the battle. When you establish it, don’t touch it unless it’s an emergency. (And I’m sorry, a trip to Cuba that’s 50% off is NOT an emergency.)
Making Savings a Priority
It’s tough to save money, especially when you’re living in a city like Toronto, where the cost of living is so high. I get it. However, unless you have a gold-plated pension plan, you’ll need to put some money away for retirement. Nobody is going to force you to. If you’re hoping to live on CPP and OAS in retirement, you’re in for a rude awakening.
Figure out how much money you need for a comfortable retirement and work your way backwards. Figure out how much money you need to save from each paycheque and set it up so the money automatically goes into your RRSP. If you’re not sure how much to save, go with the Wealthy Barber’s recommendation and save 10 percent of your paycheque (or whatever you can afford right now).
If you’re not quite sure where to start, do give us a call.