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Refresh Personal Finances for the New Year

Another year is winding down, and many are starting to look forward. With the rise of interest rates and inflation, many are wearier than ever about their personal finances.

Earlier this month, the Bank of Canada increased its target for the overnight rate to 4¼%. The Bank Rate is at 4½%, and the deposit rate is sitting at 4¼%. The Bank also stated that it would continue its policy of quantitative tightening.

There is also the looming threat of a recession. Many professionals predict the recession could hit as early as the first quarter of 2023.

With these terrifying predictions, it is clear why many are anxious about their personal finance in the new year. That’s why, as the new year approaches, it could be beneficial to stop focusing on your short-term financial health and start looking forward.

Doing a refresh of your finances now may seem daunting, but it’s easier than you expect. Here are some great tips to help you refresh your finances and head into the new year with confidence.

Why refresh your personal finances?

Many may ask why refreshing their personal finances is so important. It’s hard to see the immediate effect of rearranging your personal finances. This is especially true if you are making changes for the future rather than the short term.

However, refreshing personal finances is mainly to create better habits. Budgeting for the short term isn’t enough. You need to create a sound system surrounding your personal finances and be consistent.

That all starts with deciding where you want to make changes.

Why exactly do you want to be successful when it comes to your personal finances? Are you looking to change your habits to save for the future? Do you want to live debt free? Do you want to start investing, so you have a better retirement?

After deciding on your tailored motivation, put it in writing. Keep the writing in view at all times, so it is always on your mind.

The reminder will keep you in check and motivated.

Organize files and folders

The best place to start a financial refresh is by organizing financial documents. Organizing is an essential foundation for optimal financial health.

To start:

  • Go through your financial records and get rid of anything unnecessary.
  • Ensure everything is backed up digitally.
  • Get rid of anything that is a duplicate of something that you can access elsewhere. If it is hard to replace or legal, hold onto it just in case.

Once you’ve done those steps and have your documents sorted, create a single, safe place for all documents. For physical copies, use a safe. For digital copies, keep many copies on cloud storage or hard drives. Keep everything organized and easy to access and look through.

Finally, create a quick reference guide. A reference guide ensures you can easily find what you are after, and so can someone else in an emergency.

Review/create a budget

A budget is necessary, no matter how financially stable you are.

Whether you already have a budget or are looking to make one, it is best always to analyze and alter it. Financial situations change, so being on top of your budget and updating it is a must.

A budget should include every expense you incur. Debts, personal purchases, food, rent, utilities, everything should be accounted for.

Knowing where all your money goes allows you to manage it better.

Try something more lenient if you can’t stick to your current budget. A popular option is the 50/30/20 method. This method involves setting aside 50% of your income for needs, 30% for wants, and 20% for savings.

Set financial goals

Financial goals are essential to see where you are in your refreshing journey.

Rather than just looking at how much you have saved, there are more financial goals to achieve. A financial plan should also reflect your personal life. The idea of achieving your goals is to have more time and money to do the things you love.

When entering the new year, look at your past goals. Did you achieve them? Have they changed throughout the year? Either way, reinstate what you still need to complete or make new goals that align with your current situation.

Improve your financial literacy

Financial literacy is crucial to better money management. The more you understand money management, the better you can control your personal finances.

For those with additional capital, work with a CPA or an accountant. However, there are countless free resources online. The more you learn, the more you’ll be on top of your personal finances.

Learning everything is impossible, but continuous learning will help you exponentially. Always aim to learn more so you can better manage your finances. Whether it is a finance book, online courses, podcasts, or talking to your accountant, always keep up with your financial literacy.

Invest in your future

Countless Canadians are working towards a stress-free retirement. This includes taking vacations, taking trips to see family, and more.

If this is something you are trying to achieve, it is essential to start financial planning now.

Look into and start contributing to RRSPs and TFSAs. Educate yourself about investing and start investing sooner rather than later. As stated previously, numerous free resources can help you get started.

If you want an idyllic retirement, make investing a priority. Become aware of how your money can work for you and make your contributions automatically.

Assess your income and debt

To get ahead with your finances long-term, it is vital to deal with debt. Giving away a portion of everything you earn makes saving extremely difficult.

Getting it paid off immediately is crucial if you have a debt but want a financial refresh. Create a solid financial plan to pay off your debt promptly and stick to it. Credit cards often have the highest interest rates best to deal with them first and work from there.

Start by setting a debt-free date and find a repayment method that suits your life.

There are numerous methods to use when paying off your debt. Debt consolidation, paying off the smallest amount to the largest (or vice versa), paying off the highest interest rate first and more.

Choose what works best for you and stick to your financial plan.

If you are looking for the best way to handle your personal finances, Consolidated Credit can help. Our team of expert Credit Counsellors can help you create a financial plan.

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