10 financial habits to make your New Year’s resolutions
Financial resolutions for New Year’s
Everyone has big plans for the New Year. All sorts of resolutions abound, but let’s be real – what we really want is to make the most out of our money. So many of us swear that this will be the year we’re going to get on track financially and develop healthy spending habits. We’re here to help you rein in your spending and start saving with our list of the 10 best financial tips and habits to get your personal finances under control in 2020.

How to budget better

1. Set short- and long-term goals. Identifying and setting achievable goals is your first step to getting on track. If you’re working towards something, you’re more likely to stick to your budget plan.

  • Short-term. Short-term savings goals average around one to three years to save for. These can include a down payment for a car, a vacation, your wedding and an emergency fund (which should total three to nine months of living expenses).
  • Long-term. These are your long-haul goals like a down payment on a home, your child’s education and your retirement. It’ll take four-plus years to save for these.

2. Create a budget. We’ve all heard this tip a thousand times – but the reason creating a budget is on everyone’s list of top financial strategies is because it works. If you’re feeling overwhelmed just thinking about budgeting, you might want to start with one of two basic techniques:

  • Zero-based budgeting. Following this strategy means accounting for every dollar going in and coming out, down to the last penny. The ultimate goal is for your income minus your expenses to equal zero at the end of every month. You can allocate funds to rent, fixed expenses (heat, phone, internet, etc.), and savings. It’s also a good idea to factor in any irregular expenses like holiday purchases or emergency phone repairs.
  • The 50/30/20 method. This strategy has a different structure that divides your after-tax income into percentage blocks to satisfy your needs (50%), wants (30%) and savings (20%). Your main task with this method is determining what your needs and wants are, and where you’re going to put your savings.
    • Needs (50%). Stuff you can’t live without like groceries, housing, insurance, minimum credit card payments, and prescription medicine.
    • Wants (30%). Wants include more basic add-ons that boost your current quality of life, like unlimited text messaging or any clothing other than the basics that’ll keep you warm. These add up quickly and might not leave you much room for frivolous things like holidays and fancy clothes.
    • Savings (20%). This 20% should be spent repaying debts and stashing away to plan for your future.
TIP: These methods aren’t for everyone. Workers with an irregular income, like freelancers, won’t necessarily be able to plan the next month in advance. You might want to sock away extra cash during months with a heftier paycheque to save for months where there’s less work.

3. Get a budgeting app. Gone are the old days of picking through piles of receipts to figure out how much you’ve spent that month. Downloading a budgeting or saving app to your phone lets you carry your finances with you wherever you go, so you can track your spending live.

Here are a few budgeting apps to check out:

  • Mint. Mint can sync your bank accounts, PayPal account, and credit cards, track your transactions and alert you to any unusual spending. Plus, it’s free!
  • PocketGuard. If you want a no-frills app that simply states how much you’ve got left over for spending after accounting for the necessities, downloading this free app is a good idea.
  • Goodbudget. Ideal for couples who are ready to start sharing a budget, this app can be made accessible from multiple devices to allow you to share activity. It divides your cash into separate digital “envelopes” for your expenses like groceries, car insurance payments and telephone bills.

4. Pay yourself – in savings. We understand how hard it is to save when there are things you need (or want!) now. It might be easier to set aside money for savings if you look at it from a new perspective: you’re paying your future self. Saving can be as easy as having money automatically transferred from your chequing to your savings account every month, without having to think about it.

Unsure about where to begin? Set up an appointment with a financial planner at your bank and they’ll help you personalize your financial journey to suit your situation exactly.

TIP: Looking to invest? Wealthsimple helps you custom build an investment portfolio based on your personal profile. Through Sonnet Connect you can even get your first $10,000 managed for free for a year!

5. Use the budget and be persistent. What’s the point of making a budget if you don’t follow through with it? Review it often to help guide your decisions and track your spending, and update it every time you spend or pay bills. You should know at any given time how much money you have available to spend and to take care of any expenses you have left over that month.

Keep in mind that your financial situation isn’t going to change immediately or drastically, so don’t get discouraged if you haven’t seen significant changes by, say, March. If you stick to your plan and make saving a habit, you’ll see results and gain the confidence to keep it up for years to come.

How to spend better

1. Continue paying off debt and don’t add any new monthly bills. As of 2019, 14.9% of Canadians’ income1 is going toward existing debt payments. If you have debt, it’s very important to make paying it off a priority and avoid creating more.

A few pointers to manage your existing debt:

  • Know who you owe, and how much. Draft a list of every debt you have. Mark down the creditor names, minimum payments and total amount owed. Seeing the big picture in plain writing will put things in perspective and motivate you to start paying it off.
  • Make the minimum payment (at least). Even just one missed payment can impact your credit. Make sure you always have enough to make your minimum payment.
  • Decide which debts should be paid off first. It’s recommended that you pay off your most expensive debt first, making minimum payments on the rest. Any debt with a high interest rate is worth prioritizing, since you’re paying more if you run a balance.
  • Know when to ask for help. If you’ve done everything you can but are still struggling under a mountain of debt, it might be time to check in with a debt counsellor.
TIP: Always know your credit score. Borrowell is a free site that includes a free credit report that lists all your open credit. It also provides an updated monthly score, free credit improvement tips and more, and won’t impact your credit no matter how many times you check it.

2. Audit your recurring payments a few times a year. Still paying for that unused gym membership or online viewing platform? Unsubscribe from services you’ve stopped using to make sure you’re not paying for something you don’t need.

TIP: If you’re on the fence about keeping a service, track on a calendar how often you use it. This way you can determine if it’s worth the extra cost.

3. Shop around for services. You might just find a better deal. Certain products and services, like insurance, fluctuate over time and are priced differently depending on the market – you might find that one year you’ve got the best price but the next, you don’t. For services like this that could have a penalty for cancelling early, review what you’re paying at renewal and look around for discounts and cheaper alternatives.

4. Avoid overspending on ridesharing and food delivery apps. With these convenient apps, it’s harder to track how much you’re spending than when you’re paying with cash. They also have additional fees like a delivery charge on food orders or a surge charge for busier periods, so you’re spending extra where you don’t need to be.

A few things you can do to cut back:

  • Consider it a splurge. Use your app only on weekends or special occasions so it’s something to look forward to. By saving money during the week, you can justify the occasional spend.
  • Try the carpool feature. If you have to use a rideshare, go for the more affordable carpooling option – it’s better for the environment and saves you money. Just be sure to add a little extra time to your trip, since these rides can take longer with the additional stops.
  • Use public transportation. If it’s available where you live, take public transportation instead of using a rideshare. The savings will be noticeable.

5. Get the most out of your cash back and rewards credit cards. If you do need to use credit, make a habit of getting something back every time you use a credit card. Of course, what you get back depends on the card you have. You’ll want to select the right card for you based on your lifestyle.

  • Cash back. These cards pay you back a percentage of what you spend. The typical rate is between one and two percent. If your rate is one percent, for example, you’ll get $10 back for every $1,000 you spend.
  • Point rewards. A rewards card has an incentive for using it, which is typically collected points you can redeem towards certain items that may include merchandise in the reward program’s online shopping mall, gift cards, or hotel room stays.
  • Travel. A travel credit card rewards customers in the form of points or miles that can be redeemed for travel or travel-related purchases including flights, cruises, hotel rooms and more. These cards may also have extra perks like companion flights, insurance coverage and removing blackout dates and other restrictions.
TIP: We can’t stress enough how important it is to read the fine print on the credit card application! Be sure to select a card that works best for you, and that you’re aware of the rules before you start spending.

Being good with money does take practice. If you’re motivated and have the right tools, sticking to your plan will become habit and you’ll be spending wisely, saving well and reaching your goals by the end of the year.

Start saving on your insurance. Canadian households now using 14.9% of income for debt payments