When talking about new years resolutions, the options are endless. I will continue where I left off on my last article with some key financial resolutions worth making.
8. Get Smart About Taxes
Understanding your tax situation is one of the most important aspects of financial fitness. If you don't believe me, just look at your tax return to see how much of your hard-earned income goes to income tax. Add in all the other taxes like property tax, gasoline tax, GST, etc and you'll understand why, according to CCRA, Canadians pay on average 21.6% of their income to tax.
9. Tax Smart Investing
If you are investing money outside of RRSPs, you'll need to take some time to understand tax smart investing. With markets growling like a bear, many people are inclined to move to fixed income to prevent short-term losses. Before you do, take the time to understand the differences between capital gains and losses, dividends and interest income. When purchasing mutual funds, be sure to understand which funds are tax smart and which ones are not.
10. Re-balance the Portfolio
It is so tempting to overhaul portfolios today in hope of making drastic changes to prevent further losses and downside risk. This in itself may be the biggest risk. Rather than make huge overhauls, try the strategy of re-balancing the portfolio. Simply put, you look at the overall allocation of your investments a year or two ago and compare those allocations with the portfolio today and bring the portfolio back to the original investment allocation. Re-balancing will force you to buy more of your losers and sell some of your winners. I know that may sound strange but it is a systematic approach to ensure that you win over the long term.
11. Education funding
If you are saving for your children's education, you should seriously consider an RESP. Next to the immediate tax deduction of a RRSP, the RESP is one of the best strategies to take advantage of ‘free' money from the government. The RESP allows you to contribute up to $4000 per year, per child into an RESP. Of that $4000, $2000 will qualify for the Canada Education Savings Grant (CESG), which is 20% or $400. Th good news is if you missed the December 31 deadline for 2002, you can make up for the free money this year by contributing $4000 and getting $800 of free money.
It sounds so basic because it is. Just like exercise and diet are the keys to health and fitness, budgeting your cash flow is one of the keys to financial fitness. The formula is so simple –spend less than you make. With financial institutions so readily willing to give out credit cards and lines of credit, it is so easy for all of us to spend more than we make. The problem is it eventually catches up with us to the point where we have too much debt. No matter who you are and how much debt you may or may not have, budgeting is an essential part of life. Take the time to track your expenses for at least three months and you'll have a pretty good idea of where your money is going.
There you have it – my top 12 resolutions for 2003. The truth is that these are the top 12 resolutions for any year. Sometimes we try to complicate things so much when the answers are really simple.
Whether you are just starting your financial accumulation or you are well into retirement, there's something here for you. To ensure that you have some chance of success fulfilling your financial resolutions, try to work on only one or two ideas rather than trying to tackle all twelve. Your chance of success will improve dramatically.
Good luck in your financial fitness goals!