10 Day Routine To Kick Start Your Finances This New Year
Fee-for-service financial planner and founder of PlanEasy.ca
It’s the new year! Time to kick start your finances!
This ten day routine will help you shift your finances into high gear. This routine is aggressive, ambitious, and a bit challenging. This routine will cover all the basics of a good financial routine. Having a routine for your money is one of the best ways to improve your finances this year.
If ten days seems like too much (and it probably is!) then consider spreading these steps over ten weeks or even ten months to make things a bit easier. The key is to find a pace that works for you. It’s better to take a bit more time if it means you’ll stick to your new routine.
If it seems daunting then consider pairing up with a friend, co-worker, or getting the help of a financial coach. At PlanEasy we offer custom financial coaching & advice for our clients. As a new client, we’ll create a 12-month program tailored specifically to you and your goals. If you struggle with your financial routine then a bit of coaching & advice might be exactly what you need to improve your finances this year.
Day 1: Start Tracking Your Spending
We’re terrible at understanding our own habits. Most of us are blind to our personal habits, spending included, that’s why tracking your spending is so important.
Very few of us are natural budgeters, the majority of us need to track our spending to understand where our money goes each month.
Tracking your spending is easy. With the help of technology it doesn’t have to be difficult, try using our free spend tracker. Remember, you don’t have to track your spending forever, just long enough to help you understand your money habits, find the good ones, and get rid of the bad ones.
Day 2: Make A Basic Budget
Having a budget can help you keep your spending under control. Controlling your spending will let you save a bit of money each month and saving money on a regular basis is the cornerstone of a healthy financial life. Budgeting can seem difficult if you don’t follow the right steps. Make a basic budget to start and then tweak it as you go.
Day 3: Make A Debt Payoff Plan
Left unchecked debt can spiral out of control. The good news is that there are lots of different strategies to help you tackle your debt. You can take comfort in knowing that many people have been in the same situation and are now living debt free, it just takes a little planning and dedication to get out of debt.
To get out of debt, choose one of the three basic debt repayment strategies, debt snowball, debt avalanche, or debt snowball/avalanche hybrid. Use our debt payoff calculator to make a plan and choose the right repayment strategy for you.
Day 4: Plan For Infrequent Expenses
Budget for the unexpected. Plan for the unplanned. It seems like an oxymoron but planning for infrequent expenses is an important budgeting tool that can help you stay on track financially. Infrequent and unexpected expenses can be a real pain in the @$$. You can go months with a perfectly balanced budget only to have it blown out of the water by some unexpected expense. Plan for these unexpected expenses and avoid a lot of financial stress.
Day 5: Plan For Emergencies
An emergency fund, or “e-fund”, is an amazing thing! Everyone NEEDS an emergency fund. Think of an emergency fund like a seat belt. Most of the time it’s just there doing nothing… but when an emergency happens your e-fund jumps into action to prevent serious financial harm. An emergency fund is a pile of money you keep tucked away in a safe place in case of a financial emergency. Your pile of emergency savings should be equivalent to 3-6 months of living expenses, but it can be much smaller to start.
Day 6: Calculate Your Marginal Effective Tax Rate
Your marginal effective tax rate is your marginal income tax rate plus the claw back rate from government benefit programs. These claw backs are based on your net income and work much the same way that income tax does, the more you earn, the more of your government benefits get clawed back.
Knowing your marginal effective tax rate is a very important consideration when planning your finances. For some households, especially ones with children, the Marginal Effective Tax Rate (METR) can be over 50% and as high as 70%+ in some cases. If you’re one of those households you can take steps to maximize your government benefits and minimize your taxes this year. For each $100 you save you could be getting $50-$70+ back!
Day 7: Decide Between TFSA or RRSP
Deciding between the TFSA or the RRSP can be tough. The TFSA and the RRSP two of the main tax advantaged retirement accounts in Canada. You can use one, the other, or both to save for retirement. Making the right decision could be worth $10,000’s to $100,000’s. Figure out which one is best for you.
Day 8: Make A Basic Investment Plan
Having an investment plan is critical for every investor because we’re not always the rational, logical, disciplined investors we’d like to be. We’re emotional. We fear loss. We suffer from behavioural traps. And these traps have a real financial impact. The gap between investor return and fund return is anywhere from 0.33% to 2.61%! That means that someone with an investment portfolio of $100,000 could be losing between $300 to $2,600 per year because of their own behaviour! Making an investment plan can help you avoid this gap.
Day 9: Start Investing
Investing is one of the best ways to build wealth. Rather than letting your money sit in a high-interest savings account, where it does next to nothing, you put your money to work. When you invest, you buy small pieces of companies, and as a part owner of those companies you get to share in the profit they create. What is the best way to invest? Well, that depends on your specific circumstances. It depends on how much time you have, how involved you want to be, and how much you want to pay in fees etc. Investing today is easier than ever. There are new and easy ways to invest in a highly-diversified portfolio of stocks and bonds.
Day 10: Make A Basic Retirement Plan
You need less for retirement than you think. Numbers are often thrown around for retirement, $1 million comes up often, probably because it’s an nice round number. Now they’re saying $1 million isn’t even enough. Now they’re saying you need more, maybe as much as $2 million. The truth is…. that’s utterly ridiculous. The average Canadian won’t need $2 million to retire and if you’re targeting that amount (or even $1 million) you might be saving TOO MUCH for retirement. If you don’t have a plan then now is the time to build a basic retirement plan to make sure you’re on track.
Financial planner, personal finance geek and founder of PlanEasy.