Best Tips to Build Your 2021 Financial Plan
Every year Canadians set new year’s resolutions, financial resolutions are only second to weight loss resolutions. Building a financial plan is a task that many will avoid for most of their lives until they are forced to do so. It’s important to set your financial goals in the beginning of the year and prioritize each financial goal. The sooner you plan, the sooner you can reach your desired goals. There is nothing too big or small that you cannot achieve as long as you plan for it and take action. Financial freedom is a decision around discipline and commitment.
Here are a handful of simple tips to get started on your 2021 financial plan:
- Keep it simple- financial plans do not need to be elaborate. Start where you can, make a plan of action…even if it is small. Small steps lead to big wins over time. Some baby steps to start with may include, starting an automated transfer to your savings, TFSA or RRSP fund, learning how to set and stick with a budget or even just admitting you need a little help with your finances. It’s never too late to start and any step, even the smallest is step in the right direction.
- Pay off some of all of your debt- In certain situations, paying off your all your debts first may not always the best path managing your debt and strategizing an efficient way to pay it off is key, whether in the short term or long term. Should it take too much time to pay off debt before saving, people miss out on the time horizon to have money compound. Compound interest is needed to make money long term and that requires time that we cannot buy back no matter how much debt we’ve paid off. Ideally, you want to save money while paying off debt.
- Build or rebuild an emergency fund- most Canadians unfortunately do not have an emergency fund. Emergencies are part of life and unavoidable. For the few that did have one, 2020 more than likely showed that it was still not enough. Put yourself in the position to deal with emergencies in cash. That will allow for much less stress and much more peace of mind. An emergency fund creates a strong financial foundation to build on.
- Build a budget and work within it- like a financial plan, budgets should be simple too. Having a budget helps you become aware of your bad habits around how you spend money. It is not meant to restrict your life. It is designed to help you reach your financial goals. You can simply. It is part of your journey to becoming financially responsible. In order to stay out of debt and save money well, what comes into the bank account should be more than what leaves the account.
- Ask for help- you don’t know what you don’t know. Don’t be afraid or ashamed to seek guidance and coaching with your finances or a good financial advisor or a Licensed Insolvency Trustee firm like Bromwich+Smith The Canadian education system does not implement an adequate foundation of personal finances, so most people have not been given the proper tools and resources to make good financial decisions. It is our responsibility to go seek the information we need to make better decisions for ourselves and our family.
The foundation of a proper financial plan starts with protection- the life and health kind. People are so quick to protect material assets like their home and car, that are replaceable, yet don’t understand to protect their most valuable asset, that is not replaceable…their ability to earn income and provide for their family. There are many types of life, illness and health insurance that can be tailored to meet people’s goals and needs. Most times life and health insurance costs less than car and home insurance, but many don’t know that.
Wherever you are at with your finances just decide that you will start to take charge of it. Achieving financial freedom, whatever that means for you, should be a fun process along the way. We are more inclined to do things we can have fun at. Beyond the money, it’s about be peace of mind and hope that having control of our finances will provide us. Make the decision to get started, take small steps and ask for help. Financially secure people did not get there on their own.
Written by: Linh Tran, Financial Educator & Coach
World Financial Group