I don’t normally write back to back posts, but hey it’s 2017, a start to a brand new year! 2016 might have been bad year if you were a celebrity, but the financial markets did quite well. Let’s hope for a great follow up in 2017!
January is always a month for resolutions. Whether we choose to lose weight, start a new career or spend more time with family, it’s a never ending list of things to do. No doubt we should also start 2017 by thinking about our personal finances and the “stuff” that we should do.
We’re all guilty over the holidays for overspending. It’s the holiday season and sometimes it’s tough to have enough cash flow to cover all the gifts and outings that you might have in December.
What that means for most people is the accrual of credit card debt. Unfortunately, credit card debt is the worse form of debt because it carries one of the highest interest rates that one can have from borrowing money. The best financial decision to start the new year off is to get rid of that credit card debt. You don’t want that to linger around and restrict your cash flow for the rest of the year.
January 1st is my favourite day of the year because that’s the day I can put more money into my TFSA. This year the contribution room is $5,500. There should be no excuse for not using your TFSA. Including this year, the maximum contribution room for someone that turned 18 in 2009 is $52,000. That’s not a small number. A balanced portfolio with a return of 6%, like the last two years, would net a tax free gain of $3,120. That’s $260 a month or $45 a week. Not too shabby.
If your TFSA contributions are just sitting in cash or a GIC, it’s time to start investing. Having your money in a TFSA account and collecting small interest payments is just wasting its potential away. Change it to a brokerage account where you can invest in stocks and equities and start creating a balanced portfolio today!
Why does it always seem that we run our of money at the end of the year? That’s probably due to poor budgeting. After a full year of expenditures, it’s a chance to reflect, review and decide how to better manage your monthly budgets for 2017.
Remember that budgeting doesn’t only include your regular monthly expenditures, but things like gifts and vacations that come up during the year. That money should be socked away early in the year so that when it comes to the December crunch, you don’t get caught without savings to cover expenses. Saving a little bit month by month to meet the demands of the holiday period will help your holiday hangover in the next January.
It’s also a good time to remember that you should aim to save 10% of your gross income every month. Start by dividing your yearly income by 12 and set up an automatic transfer between your regular chequing account and a long term savings account (preferably an investment brokerage account).
Re-balance That Portfolio
The new year is the best time to review that investment portfolio and re-balance it. I already have steps on how to do it here. This is quick and easy and doesn’t take too much time to do. Remember the purpose of re-balancing is to readjust your investment portfolio to suit your original risk requirements and to meet your goals. You don’t necessarily need to be adding money to re-balance a portfolio. You just want to make sure that your portfolio hasn’t deviated too far from your original asset allocations.
It may seem counter intuitive to sell assets that are doing well or might do well, but that’s the point. You don’t want to be chasing gains. Re-balancing a portfolio ensures that you are basically selling high on assets that are doing well, and buying low on assets that have lagged. Take the emotions away from investing by just following a standard mathematical formula. Be a robot.
It’s a brand new year. A brand new beginning. Anything can happen, but you have to make it happen. Follow through with your financial goals for the year and by this time next year, you’ll be one step closer to achieving financial independence.