How to keep your financial resolutions alive
Did you begin 2013 with any New Year’s resolutions related to your finances? If so, you are not alone. Each year, Canadians set or renew goals in a wide range of areas, and for many, the start of a new year provides the needed motivation to commit to improving their finances.
And that’s not surprising, when you consider that in the second-quarter of 2012, our household debt-to-income ratio here in Canada was at a troubling high – for every dollar of disposable income, Canadian households owe $1.63. On the other end of the spectrum, we are saving far less than previous generations. In 1980, Canadians saved 15 per cent of their after-tax income. Today, we save only about three per cent.
But here’s the rub – it’s great to have all these laudable financial goals; it’s another thing to actually follow through with them. So, for my first column this year, I’d like to share five tips that can help you stick to your goals.
1. Nail down the numbers.
To increase your odds of maintaining your financial resolutions, capture your goals in specifics. Don’t be vague about what you’d like to accomplish. For example, you could resolve, “I will save money this year” or, “This year, I will save $100 each month.” Which of these two is better? The second, of course. That’s because it’s a precise goal.
Apply the same approach to your spending. Instead of vowing to spend less this year, define what you mean by “less.” Want to invest in your retirement or children’s education in 2013? Capture this vision in numbers by determining exactly how much you’d like to contribute to your RRSP or your kids’ RESPs.
A good way to nail down your numbers is to actually write them down by creating a budget or financial plan. Clearly quantifying and documenting your financial goals will help you keep your eye on the ball as you move forward. It doesn’t mean you can’t be flexible if circumstances require, but it will ensure you can monitor your progress throughout the year.
2. Keep it real.
One of the surest ways to fail is to overreach. If you are now developing a savings habit, determine to set aside an amount that won’t throw your regular living budget totally out of whack. Remember you can’t remedy your finances overnight. Focus on one or two key areas and once you begin to see success, you can add others.
It’s also helpful to chunk out your goal over a period of time to make it less overwhelming. Want to save $50 dollars a week? Break it out into a daily savings amount. Does your annual RRSP goal seem intimidating? Don’t wait till the last minute to contribute a lump sum; you can set up an automatic monthly payment plan and gradually build up the needed funds.
3. Set the time.
If applicable, always link a time to those key financial decisions. It’s not a magic formula to get you to follow through, but it will increase your chances of beating the proverbial thief of time – procrastination. Did you resolve to consult with a financial planner this year? When? If you leave the timing up in the air, your New Year’s resolution may evaporate into air as well. Or maybe you resolved that this year you would start a RESP for your daughter. Great goal, but you’ve got too much wiggle room to postpone if you don’t establish a time objective.
4. Picture the results.
You probably learned not to count your chickens before they’re hatched. However, the ability to picture the positive end result of the sacrifices you’re making can serve as a powerful motivator. Use a calculator to work out the measurable results that will flow from the changes you’re making, or the plan you’ve developed, if you stick with it over the medium or long-term.
How much would you have saved over a year, or three years? Let that figure tempt you. If you maintain your reduced spending plan for two years, what would the financial return be? Imagine what you could do with that. When the going gets tough, think of the end prize.
5. Use the buddy system.
This final tip has proven to be effective when it comes maintaining a workout or exercise schedule – involve a friend or relative who can keep you accountable. Find someone you trust and share your financial goals with them and ask if they will help keep you honest.
For example, if you want to pack lunch and save the money, do a weekly check-in with your friend to report how well you did. If you both have financial goals, you can exchange them and commit to providing support and motivation to each other by sharing your progress and if necessary, encouraging each other to get back on track with your goals.
No matter your financial goals for 2013, I wish you nothing but success and a happy and prosperous New Year!
Kathy McGarrigle is chief operating officer for Coast Capital Savings.