Financial Resolutions

The year 2003 has finally come and after a dismal year in the markets, 2002 could not have ended soon enough for investors. The New Year is usually a time to reflect on resolutions and think about the things that went right and the opportunity to change the things that did not. For many of us, our resolutions are usually about health and money. As we head into the RRSP season and the New Year, it is not only a great time to re-visit our health and fitness but also a time for many to think about their financial fitness.

Are you financially fit?

What does it mean to be financially fit? In the health world we often use weight as the benchmark. When we use weight as a health benchmark, it is amazing to hear that according to Statistics Canada, 47.5% of Canadians are overweight and 31.5% are considered obese.

In financial terms we do not have a common benchmark like weight to determine whether you are financially fit. The reason is that financial fitness incorporates so many facets of financial planning like assets, investing, life insurance, estate planning, tax planning, income, budgeting and banking just to name a few. This year I offer you a few thoughts to help you with some financial resolutions for 2003.

1. Calculate your Net Worth

Just like weight is the benchmark for health and fitness, your net worth can serve as the benchmark for financial wealth. In order to assess your future progress of wealth accumulation, you will need to know your net worth. The calculation is as simple as taking all the assets you own and subtracting the debts you owe. If the answer is a negative one, then the first thing you will need to do is pay down your debts.

As simple as this sounds very few people actually take the time to calculate your net worth. Just like most people know how much they weigh, you should know what your net worth is. Your future goal will be to increase your net worth year after year.

2. Paying Down Debts

After the Christmas season, many of us accumulate debt and especially the high interest credit card kind of debt. There are three golden rules to paying down your debt. First, pay off the highest interest debt first like credit cards. Second, pay off non-deductible debt before deductible debt and third, don’t get back into debt once you have paid off debt.

3. Life Insurance

The golden rule to life insurance is to only have life insurance if you need it. There are three basic reasons why you might need life insurance. The first is to insure your debts like mortgages or lines of credit. This way if something happens to you, your loved ones will not have the burden of debt payments. The next reason to have insurance is for income replacement. If you were to pass away, would your family continue to need your income? If so, put life insurance in place to create future income. This is the area most overlooked for proper insurance coverage. Finally, insurance can be used to cover expenses like funeral costs and taxes. Make sure you have the right amount of insurance.

4. Forced Savings Plan

It is this time of year when Canadians are considering investing into RRSPs to save a few bucks in taxes. What I find amazing is that 83% of those that file taxes have unused RRSP room and in 2001, only 9% of all the total available room for Canadians was used. Financially fit people will maximize their RRSPs and the best way to ensure that you have money invested is to set up a monthly contribution plan.

5. Estate Planning

The most basic aspect of an estate plan is the Will. The Will ensures that your assets will be distributed according to your wishes. Proper Will planning will help you to minimize taxes and ensure that you maximize the assets that can be distributed to your benefactors. Make sure you have a Will and that your Will gets updated regularly.

6. Living Benefits

Living benefit insurance refers to insurance that protects against risk that may occur while you are still living. Disability insurance protects you in case you get disabled and can no longer work. The newest living benefit insurance is Critical Illness. Cancer, heart attacks, strokes and other major illnesses are on the rise and the need for critical illness insurance increases. If you do not have critical illness insurance, be sure to look into some coverage. It may not be cheap but your chances of collecting are pretty good.

7. Banking

For a couple of years now, I have preached the merits of high interest banking. There are two key benefits to high interest banking. Firstly, you start earning a much higher interest rate than your conventional bank account. Secondly, most high interest bank accounts have no fees. If you are not earning more than 2% in your bank account and have monthly fees, be sure to ask your financial advisor about alternatives.

Written by Jim Yih

Jim Yih is a Fee Only Advisor, Best Selling Author, and Financial Speaker on wealth, retirement and personal finance. Currently, Jim specializes in putting Financial Education programs into the workplace. For more information you can follow him on Twitter @JimYih or visit his other websites and Clearpoint Benefit Solutions.

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