Five financial goals to achieve this year
Do you ever wish there were a cheat code that could immediately improve your financial situation? Tap a few buttons and, poof, you’re financially secure. Sadly, short of winning the lottery, there is no effortless way to magically improve your finances, but setting these five goals might be the next closest thing.
Pay off your high-interest debt.
Few things can erode your finances faster than high-interest debt. The compounding of interest – the interest you’re being charged on your interest – can make your debt linger far longer than you expect. It’s why a $5,000 credit card bill can swell to more than $10,000 over 20 years if you’re only making the minimum payments.1 If you want to get your finances on the right track, the best thing you can do is pay off that debt. Warren Buffett, arguably the most successful investor ever, agrees. “If I owed any money at 18%, the first thing I’d do with any money I had would be to pay it off,” he said. “It’s going to be way better than any investment idea I’ve got.”2
Work toward saving 20% of your income.
Save more, spend less. Simple advice, but not so simple to implement, right? Not necessarily. Automating your savings can make saving easy. When you set up a preauthorized contribution that is timed to your paycheque, you force yourself into the habit of paying yourself first. Start with a small percentage of your earnings and then grow it over time. You probably won’t even miss the money, but you’ll be pleasantly surprised at the boost it can give to your savings. The forced savings will also help you build and stick to your budget, encouraging you to root out unnecessary spending, like subscriptions you don’t use, or finding other ways to save, like saving on your taxes. For added motivation, tie your savings to a goal, like a dream vacation, a new car or owning a home.
Build your own safety net.
Life can get messy at times: cars break down, appliances stop working, phones go missing, unexpected layoffs happen. Keeping your financials stable is crucial when it feels like your world is out of control. The way to do that is to build a well-stocked emergency fund. By creating a safety net, you can avoid taking on debt to cover your everyday expenses. Until recently, low interest rates on home equity lines of credit and some personal loans made an emergency fund less urgent, but given the recent surge in rates, it’s time to rethink that approach. How much should you save? As a rule of thumb, consider saving enough to cover between three to six months’ worth of expenses.
Get a jump on retirement planning.
Remember how compounding debt can ruin your finances? It works the opposite way, too: the more you save, the more your money can compound and grow. Once you’ve developed your savings habits and have an emergency fund in place, get a jump on your retirement plan. The earlier you start, the longer you have to take advantage of compounding, and the better off you’ll be, which is why earmarking money for retirement is the top savings priority in the Fidelity Retirement Report. If you haven’t already done so, open a Registered Retirement Savings Plan (RRSP), which will allow your investments to grow tax-free until you need the funds, plus your contributions could help you get a refund come tax time. As you start to save, think about what type of retirement you’re saving for. Your plan should determine your retirement income. This figure may change over time, but it’s important to have a goal to keep yourself on track. Fidelity has some tools that can provide some helpful guidance.
Find another income stream.
Work smarter, not harder. There are many ways to earn income, but they don’t have to involve taking on a second job. If you want true financial freedom, then it’s important to try to unlock other income streams. How? By putting your money to work in the market. That’s what happens when you invest. Having a financial plan and a balanced portfolio can help you grow your savings over time. When you’re younger, in your accumulation phase, you can often afford to hold riskier assets, like equities, for the chance at higher earnings. Then, as you get closer to your goal, you may want to increase your exposure to less risky investments, like fixed income, to protect your gains. Dividends – regular payments made by a company to their shareholders – can be a good way to effortlessly boost returns, too. A well-maintained portfolio can generate income that can carry you through retirement.
You may have other financial goals on your mind for 2024, but no matter what you do, you’ll want to pay attention to these five, too. Getting better at managing your money doesn’t have to be difficult. In just a few easy steps, you too can be on a path to financial freedom.
