Money Tips for 2020 – Part 1
With the New Year, we all ring in a bucket load of new resolutions. Lose weight; get in shape; see your in-laws more often; be better to the environment; drink less; start a new hobby; get along with your boss better; be smarter with your money… all worthy causes we’re sure, but only on one can we offer any advice. How to be smarter with your money.
The things you can do to end 2020 in better financial shape than 2019 are not difficult to understand or do. What is hard – as with most new year resolutions – is the discipline to keep at it past mid-February. One way to give yourself more discipline is to give yourself a goal. When you set a goal – a financial destination if you will – it is easier to map out your route and stay on the path.
Your goals could be a number of things. Maybe you want to get rid of your debt. Or maybe you want to lessen your debt while saving for a downpayment on a house or that once in decade trip. Perhaps you’re at that point when it’s time to start saving for retirement (after all you can never be too young for that… seriously). Whatever your goal, write it down and stick it on your refrigerator. A great way to stick to a plan is if you are reminded of it every day.
So now that you have a goal, what are some things you can do to achieve it?
First, don’t be afraid to get some help. Talk to your bank; look online for DIY tools like budgeting templates or money management apps like Quickbooks.
Second, get a look at the big picture. Calculate your net worth. I call this the Double O… what you own and what you owe. Start by listing everything you own along with its value (be conservative if you don’t have a hard number on value). For example, your car, household items of value, RRSPs or any investments, home equity if you own your home, the cash value of life insurance policies, etc. (Making a complete list of what you own can also come in handy for either homeowners’ insurance or renters’ insurance.)
Next, list everything you owe… all your debts along with what you owe: credit card, school loans, bank loans, line of credit, mortgage balance, etc. Now just subtract the second ‘o’ from the first and that gives you your net worth… which also gives you a pretty clear picture of your financial situation.
Calculating your net worth gives your goals a reality check. Is what you want to achieve financially viable? Is it the smart thing to do? If your net worth is negative for example, perhaps you should think about focusing on reducing debt rather than saving for that great trip… at least for this year.
Ok, with your goals in place and a better idea of your overall financial picture in hand, time to pull together a plan on how to get there. And that starts with a monthly budget.
There are lots of home budget templates available online as well as in software packages like Excel, Numbers or even Google Sheets, that can be a great help to make sure you cover all the bases. But the process is pretty simple. Calculate your net income (after taxes) from all sources. If your income is variable because of the nature of your work, then use the lower amount for your budget.
Next, calculate all your expenses. Start with fixed expenses like rent or mortgage, loan or credit card payments, cell phone, car payment, etc. Then tally up your variable expenses. Be honest with yourself as you do this and estimate on the high side for things like groceries, entertainment, utilities, etc. If you are unsure of what you spend, you can either look back a couple of months or keep track for a couple of months. If you – like many of us – tend to use debit a lot, you can get a good idea just by looking at your bank account and credit card statements.
With what comes in and what goes out calculated (this is your cash flow) you can now plan your monthly spending. Set amounts that you are going to spend on those variable costs. Look for areas in which to economize or change your behavior in order to have the funds to achieve your goals. But before offering some tips on how to do that, here’s one thing we really think you should consider.