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February is a great time to begin thinking about your financial situation in 2020.
That may seem a little late in the year to start your financial planning, but let’s be honest, by this point the New Year’s resolution buzz has worn off and your holiday spending hangover has subsided (at least a little bit). Now you can look to the year ahead with a clear focus.
When looking at your overall financial picture it can be overwhelming. Where do you start? Pay off debt or save? Where should I be investing? The key is taking some form of action.
Sometimes, it can be easy to get caught up in all the questions, causing us to do nothing. Here are some actionable steps you can take in 2020.
Although timing the market can be tempting, it is much more important to take a long-term approach that factors in your goals and risk appetite.
This approach takes the market ups and downs out of the equation and means less stress agonizing over market uncertainties.
Once you’ve established goals and risk appetite, you can begin to look at investment options for your money. As we mentioned above, inaction when it comes to your financial plan is the enemy, and with fear or lack of knowledge come into play it can be tempting to park your money in a low-interest savings account or chequing account which may not always be the best choice.
Remember, everything you do with your money has risk even those who leave money sitting in a chequing or savings account.
The risk in this scenario is that when you leave money sitting your money is being devalued because it’s not keeping up with inflation.
This essentially means the buying power the money has today will not be the same a year from now if it doesn’t keep pace with the inflation rate.
Here’s an example: You have $20 today and you deposit $10 into a chequing account (earning no interest), and with the other $10 go to the store and see how many loaves of bread you can buy. More than likely the answer is three.
Fast forward one year and go back to withdraw the other $10. Now go to the store and buy the same loaves of bread.
More than likely you can only buy two loaves as the cost of goods has gone up.
You still have the same amount, but your money has less buying power than it did a year ago.
What you want to do with your advisor is to ensure you have a financial plan and look at how you can get your money to work for you.
When trying to put money aside for savings there is always a tipping point as to how much your budget can handle.
If you are having trouble setting money aside, I recommend you start with a small amount and take it up from there to see what works for you.
For some, that may be just $25 bi-weekly. I equate it to going to one less movie/or eating out one less time per month to help you save. Have that amount automatically taken out of your account and placed into a TFSA every payday to ensure you won’t forget.
Initially, it may make your budget seem a little tight, but in a few short months, you probably won’t even notice it. At that point, you can re-evaluate and see if you can afford to bump the amount up.
I recommend placing your auto-transfer into a TFSA as it prevents impulse spending versus having it in a savings account.
Making it slightly more challenging to access means that you will have more time to think about impulse spending which is a really good thing.
The financial world is complex, and your plan should be unique.
We do our best to give good general advice in articles such as these, but I can’t stress enough how important it is for everyone to sit down with an advisor to discuss their short and long-term goals.
Once they have identified their top goals whether it be buying a home, paying for their child’s education, or retirement, we then look at building a financial plan to help achieve those goals.
A financial plan should be treated as a living, breathing document and will be updated or changed regularly to meet your current needs.
By identifying your goals and working with an advisor, budgeting and saving become easier and you also have someone in your corner to help you achieve your financial goals and keep you accountable.
Terry-Lynn Vint is a Senior Financial Advisor at Valley First, a division of First West Credit Union. Connect with Terry-Lynn at TVint@valleyfirst.com.
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