The new year is when I always like to start fresh and take a look at all my personal financial needs for the new year. This doesn’t just mean my investments, but a lot of other things too. Like are my insurance needs covered? Did I pay all my bills? Do I need a new monthly budget? What are my financial commitments for the upcoming year? It’s all the other things that aren’t related to real estate, bonds and equities that should be reviewed at this time of the year.
Closing The 2017 Books
By now we’re all probably in the holiday hang over mode. We’ve probably gained a few pounds from the holiday eating and we’re totally maxed out on our spending from Boxing Day and gift giving. Now is the time to make sure you start on a clean slate. It’s time to get lean and fit and make sure all of our 2017 financial budgets are closed.
All of us hate paying bills, but before we can even plan for 2018 we should try to start ourselves on the right foot by eliminating all outstanding debts from 2017. We definitely don’t want to big digging a deeper hole throughout the year. That’s why if there are credit card balances to pay, we should be getting rid of those first.
Tackle debt so that interest payments don’t continue to build up which eat up future capital. Nothing is worse than starting the new year in the red and continually trying to play catch up for the rest of the year. Make a plan to tackle your debt early in the year, even if it means you have to make sacrifices in the first few months to achieve it.
Set New Goals
This year I’ve set my financial goals based on what I want to achieve and what personal interests I want to fulfill for 2018. I want to continue to do some traveling, so I have earmarked money in my monthly budget to achieve these goals. Everyone will have different financial goals so it’s important to set these up early in the New Year so you can prepare for them throughout the year.
Do you have a renovation you want to do? Looking to buy a new house? Or perhaps you want to take an educational course to improve your skills. All of these major financial commitments should be planned for. A new monthly budget should be drafted up to tackle these new financial goals so that the expenses don’t become surprises down the road. Proper planning at the beginning of the year will alleviate much of the financial stress that may happen later on in the year.
Starting out the new year right is always a good step. Like every year since 2009, the first thing I do when the clock strikes 12AM is login and make my contribution to my TFSA. This year the limit is $5,500 again. For everyone this might seem like a lot, but every month I try to save $450 so that in the New Year I have money to top up my TFSA. It’s part of my monthly budget and you should make it a habit as well.
It’s always good to put away money into the TFSA no matter what. I prioritize the TFSA over the RRSP because I’m not making money like our Finance Minister Bill Morneau, nor do I believe in the RRSP home owner’s plan, so the tax deferral of the RRSP doesn’t do much for me. It’s far more predictable to use the TFSA because I know my gains will be tax free.
Remember that each day that money is not in the TFSA is a potential day where tax free gains are missed. So it’s best to do so as soon as possible. No one can get time back in life.
Most people think I day trade or look at my investment portfolio on a regular basis, but in reality I don’t do much with it. New Year’s is actually one of times of the year that I actually do something. Since the beginning of the year is when I make contributions to my TFSA, I always take this opportunity to rebalance my investment portfolio.
It actually takes me very little time to rebalance a portfolio and for most people this should be the same. It should really only take an hour or less. I consider this one hour to be very important because it resets the percentages of my investments to suit my own personal risk profile.
Ideally for people investing on their own this is a good time to make sure those ratios are still intact. No doubt most people this year will realize that they will have to make up for the shortfall in their fixed income side of the portfolio. This has become a common theme over the last decade of investing as the bull run in the equities market has far eclipsed any gains seen from interest payments in the fixed income market. That’s why we continue to beef up the fixed income side of the investment portfolio since we want to ensure that we are prepared for any kind of market correction that may occur.
If you started with the standard Couch Potato percentages, try to make sure that they remain the close to the same. If you chose to keep a 60-40 split between equities and fixed income, try to maintain that same ratio. Don’t start skewing your percentages just because stocks have done well in the last year. You want to sell what has gained and buy those that not to bring that ratio back down to 60-40. Don’t chase gains! That is not how passive investing should be done.
Reaching financial independence doesn’t happen overnight. It takes dedication and commitment to really get yourself there. Too many people give up too early in their financial goals because it’s just so easy to get instant gratification this day and age. That’s why it’s important to stay focused and stick to your plans.
If you’re looking for inspiration. Keep reading my blog. This year I’m hoping to report on the successes of many people who I’ve helped along the way to reach their financial goals and independence. Hopefully we can learn each other.