Four tips to improve your financial health

It's most financial advisors' favorite time of year: January. It's also Financial Health Month. Now is a good time to look to the future and plan the 2024 budget, but also to reflect on what worked and what didn't work in 2023.

It is fair to say that it has been a difficult, even difficult, year for many Canadians. The government is committed to reducing the budget deficit and avoiding worsening the central bank's efforts to return inflation to its preferred target of 2%, as outlined in its autumn economic statement.

Meanwhile, many of us have to worry about rising mortgage payments and bills. So what can we do? I spoke with Steve Bridge, a certified financial planner, and Aleem Dangi, a senior wealth advisor, and here are our top four ways to improve your financial well-being this year:

Budget strategically

“Adjust your budget to match the increasing costs of living. Set priorities and identify areas where you can reduce your spending; this can help you maintain your financial stability during economic fluctuations,” explains Alim Danji.

Steve Bridge talks about “clarity”. According to him, few people know exactly where their money goes; Only 3 to 5% of them know the truth. The big question is:

Is your money going where you want it?

According to him, the budget is divided into four categories:

Fixed monthly costs: Mortgage, cell phone bill Variable monthly costs: Groceries, gas, restaurants, toiletries, pet food Annual costs: Property tax, Costco membership Random costs: Clothes, gifts, travel, car repairs, home repair

“Being clear about where the money goes gives you choice,” adds Steve Bridge.

Have an emergency fund

Year after year, people find themselves financially stuck when faced with emergencies.

Aleem Danji advises building and maintaining an emergency fund to meet unexpected expenses. Ideally, this fund should cover living expenses for six to twelve months.

“An emergency fund acts as a financial buffer, providing a safety net during periods of uncertainty and reducing the impact of sudden financial shocks,” he adds.

Take control of your taxes

Steve Bridge often sees clients getting stuck on taxes. He advises asking yourself the following question: “How can I reduce the amount of my taxes? How can I reduce the amount of tax I pay?” Consider using RRSPs, TFSAs, and RESPs (that's not a tax break, it's free money).

“Tax planning is not a one-time exercise,” he says.

A TFSA is best used for long-term investing — even if it's called a “savings account.” The ideal is to invest in it. This is a financial mistake that we continue to see.

This is an example :

Ali, 31, has $5,000 and started investing it in his TFSA this year. Over the next 20 years, he added $5,000 a year. It maintains a return rate of 6%. Inflation hovers around 2%. In 2044, he will have made just under $200,000. It's not too bad. If Ali did exactly the same thing with cash, he would save perhaps $20 more than the $105,000 in contributions he made. maybe.

Determine your goals

“I've never been a big fan of goals,” says Steve Bridge. Today, that's where he starts with his clients, because goals are very important. The short, medium, and long-term goal categories are a good place to start. Some of the most common goals include early retirement, paying off debt, and maximizing RRSP use; The place they occupy in goal categories depends on the person's life stage.

Another hot topic is subprime mortgages due to rising interest rates. Lump sum payments, moving to biweekly accelerated payments, and the pros and cons of renewing your mortgage are all relevant considerations. How do your goals align with your home payment?

All of these things make great talking points for your next meeting with a financial advisor to discuss this year's budget.

Because at the end of the day, what is a budget? “Budgeting is about telling your money where it's going, rather than wondering where it went,” Steve Bridge explains. He adds that it's his new favorite quote.