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Smart money moves to make in January

There are lots of things you can do to start the year right, but one of the simplest is to automate a savings plan — even if you don't know what you're saving for yet.
There are lots of things you can do to start the year right, but one of the simplest is to automate a savings plan — even if you don't know what you're saving for yet.

Q: I’m a youth leader and because I worked at a bank during my university years, I somehow got chosen to talk to the teens about money. I’ve got quite a few tips I can share with them, and some stories about what not to do. But the truth is, I wish I could share more of my own success story. Life is expensive and my partner and I have our fair share of money struggles and disagreements, usually about our bills. Things are OK for a while, then we get busy and put our money on autopilot, typically heading in the wrong direction, unfortunately. I don’t feel successful at all and while I’m afraid that the teens will see through me, I’m more afraid of being in the same position as I am now, a year from now. What can I do? ~Raj

A: No one is born knowing how to manage money; it’s a skill we need to learn and practise throughout our lives. I’m glad to hear that you’re planning to speak to the teens about money, even if you don’t have all the answers. It’s such an important topic at a crucial time in their development. The money habits they develop now will carry them into their young adult lives and can shape their financial futures.

As a former banker and someone with some life experience, you can appreciate that we often learn more from our money mistakes than we do from our successes. This is due in part to how losses and mistakes make us feel worse than comparable gains and successes make us feel good. A fisherman talks about the fish that got away much longer than the one he caught. We talk about the deal we almost got much longer than what we actually bought.

To jumpstart your year of making positive financial gains, there is one crucial thing you must do. If you want your situation to look better next January, you need to get started. To improve your situation, do something. Don’t complain, make excuses or avoid your situation. If you keep letting another day go by where you don’t begin, you’ll never win.

With that in mind, here are smart things to do for your finances this month:

Check up on your cash management system

Whether you call it a budget, your spending plan, or it’s just how you manage your money, January is the perfect time to see if your system is working for you or not. One quick way to check up on yourself is to compare this January to last January. However, keep in mind how your finances were affected by the pandemic as you take a look at where your savings and debt balances stood a year ago.

If your income was seriously affected by COVID-19, comparing where you’re at this year versus last might not be the most useful, so take a look at your last three Januarys, 2018 to 2020. Log into your online banking to find your balances quickly and easily. Then ask yourself if you were trending in the right direction before the pandemic, or is it time to make improvements? The next 12 months will pass whether you work towards your goals or not, so determine your best steps towards where you see yourself next January and make it happen.

The Simple Way to Keep Track of Your Spending

Cancel services you don’t use

From a third streaming service that continued after a free trial ended to your unused gym membership or online magazine subscription, take a hard look at what you use and cancel or temporarily suspend what you don’t need or want. If it’s a service you think you’ll use, try a free version of something similar to see if it’s an expense that you really want to include in your budget. Subscriptions are a silent spender , and the service providers will welcome you back when you’re ready to buy in again.

Automate your savings

When your desire to save is high, but your willpower to actually do it is low, set up an automatic transfer from your chequing to your savings account and get out of the way of progress. Automate your savings by logging into your online banking and setting up a recurring transfer. Have the money move on paydays so that you don’t have the chance to spend it first.

You might also want to contact your financial institution and have the money transferred into an investment account. Saving money in an account that you do not have easy access to means you’re more likely to keep it safe from yourself.

When you set money aside whenever you get paid, before you take care of bills and other obligations, you’re more likely to successfully achieve your savings goals from one year to the next.

How Savings Can Help You Stick to Your Plan to Pay Off Debt

Create a debt reduction plan

Being in debt is a drag, so now is a great time to create a plan for how to deal with what you owe. You could, for instance, tackle your debts on your own with either the avalanche or snowball method . Maybe you want to find ways to consolidate your debt or need help deciding which alternative option is best for you. Regardless of your situation, put pencil to paper and outline a plan.

It could be a very simple plan to call your bank to make an appointment to see a lender. Or maybe you need to start by getting up-to-date balances from your online banking portal. It can help to create a paycheque plan to see how best to allocate your income. If you don’t know how you’re spending your money, your plan needs to start with tracking your spending for the next two to four weeks. This will identify habits and where you could save to come up with the money you need to pay your debts more quickly. If you’re not sure where to start or what alternatives might work for you, contact a non-profit credit counselling agency in your area for help. Becoming debt free within the year might be unrealistic, but a plan for the next 12 months will get you on track to improve your financial stability for the long term.

How to Stop Living Paycheque to Paycheque

Top up RRSP contributions

If you haven’t taken advantage of your Registered Retirement Saving Plan (RRSP) contribution room, don’t miss the opportunity to invest in your future. Contributions made during January and February can help offset income taxes in the current or previous calendar year, whichever is more beneficial to you. If your employer has a matching program, use as much as you can because it’s like earning 100 per cent interest on your money, before you even start investing it.

Older teenagers who work part-time, they can file their income taxes and start building that RRSP contribution room. While they might not start contributing right away, the contribution room they start building will be valuable once they earn more.

If your retirement savings accounts are looking a little sad, as you pay your debts off, direct the money you used to use for payments to your savings account so that you don’t spend it inadvertently or unintentionally.

Why You Don’t Want an Income Tax Refund Next Year

Collect your income tax paperwork

January and February are a good time to establish an organization system for the income tax paperwork you receive each year. With few exceptions, your slips must be mailed or made available to you by the end of February. If you’ve worked from home during COVID and/or received pandemic-related income support, you will have more tax information to submit than you might realize.

While you’re sorting what you need in order to file your income taxes, organize your bills, statements and other important money-related documents. Create electronic or physical file folders to store what’s key. Set calendar reminders so that you don’t miss important renewal or payment dates. Decide how best to back up and save your data or files, because personal income tax paperwork must be kept for six years from when you file the return.

By organizing your financial documents at the start of the year and sorting what you need to file your taxes, come March you’ll be ready to submit your income tax information. Hopefully you’ll receive a refund that you can use to top up savings or pay off a little more debt. If you end up owing, it gives you time to find ways to pay what you owe without penalty by April 30. Ignorance is definitely not bliss when it comes to our income taxes, and there’s a lot to lose if we don’t file our taxes .

The bottom line on smart money moves in January

If you want to see an improvement in your finances one year from now, you’ve got to start somewhere. Commit to living below your means and prove to yourself that you can do it with a no-spend challenge. Join forces with your partner to make it easier. Find cash that you didn’t realize you had by submitting extended health receipts for reimbursement if you have a plan with those benefits. Start saving even if you don’t know what you’re saving for. Pay extra to your debt whenever you have a little extra. Do something to get started and it will be easier to keep going. A year from now you’ll wonder why you didn’t start sooner, but in the words of Nelson Mandela, “It always seems impossible until it’s done.”

Related reading:

6 Ways Meal Planning Will Save You Money

How to Deal with Credit Card Debt

7 Financial Mistakes to Avoid at University

Scott Hannah is president of the Credit Counselling Society, a non-profit organization. For more information about managing your money or debt, contact Scott by email , check or call 1-888-527-8999.

Copyright Postmedia Network Inc., 2021

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