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The end of the year is a great time to do some reflection and clean up your finances to prepare for the new year. We’re wrapping up a decade, and the future is bright. You’re wiser, smarter, and older. 2020 can be full of possibilities, if you plan for them!
Here are a few ways to get clear on your goals and set up your finances for the new year.
Determine your financial goals, and then create a strategy to reach those milestones.
Goal-setting involves getting real with your desires. What do you want in life. How do you envision your year? Now think about what you want to leave behind.
If you struggled with poor money management in the past, you can leave it behind and start fresh. There are many resources and guides to help you with your finances.
Once you have an idea on the kind of life you want to live, break down a timeline. Understand your short-term and long-term goals and then create a financial strategy to help you get there!
If you didn’t keep a budget throughout 2019, it’s not too late to understand your savings and spending habits. Budgets are personal and they can be high-tech or simple pen and paper systems.
Essentially, a budget helps you understand how much money you spend, and how much you make. It also helps you get clear on where you can save.
One easy way to see your annual spending at a glance is through your banking app (if your bank has a budgeting tool) or by downloading your statements and categorizing the information in a spreadsheet.
When you know how much you spent in 2019, you can allocate funds for 2020 based on your priorities. Creating a budget can be liberating and will add so much clarity to your life. When you have a plan for your money, and stick to it, you eliminate the confusion about where your money went all year.
A budget can seem daunting, especially if you’ve never had one before. But if you stick to the 50-20-30 guiding principle, it’s a great start. This is one way to allocate money so that it’s used effectively.
50% is for your needs:
This includes bills, rent/mortgage insurance, groceries, and anything else you require to operate your life.
30% is for your wants:
This includes going out to eat, buying gifts, and traveling.
20% is for your savings:
This includes money you put aside for your short-term and long-term goals. A short-term goal could include paying off debts, while a long-term goal could be investing in real estate.
These percentages are basic guidelines and are flexible. It’s up to you what percentage you want to allocate on needs and wants, but the 50-20-30 model is a start.
The deadline for contributing to a Tax Free Savings Account is December 31. The Tax-Free Savings Account (TFSA) program began in 2009 as a way for Canadians to invest their money tax-free.
It’s a fabulous way to save money for more expensive goals like:
Since 2009 the annual contribution limit typically ranges between $5000-$6000. In 2015, the contribution room was $10,000. Someone who has never contributed to their TFSA and has been eligible since it started in 2009, can invest $69,500. If you don’t meet the December 31 contribution deadline, don’t fret, unused contributions are carried forward into 2020.
Kick off the new year with a plan! Set yourself up for success by reviewing your 2019 spending habits, creating a budget for 2020, and set money aside for your goals. ~ Liz Enriquez
