How to Set Savings Resolutions for 2017 and Make Them Happen
Happy New Year! Have you set your goals for 2017 yet? Every January, there’s a flood of applicants for gyms, but by the time February rolls around, most of those people haven’t set foot inside one. The sad reality is that quite a few of us will end up breaking our New Year’s Resolutions.
So how do we set a resolution and actually make it happen? That’s what this post is all about – financial resolutions. Whether you’re saving toward your child’s education with an RESP or carrying a balance on your credit card, by setting a goal and putting a system in place to achieve it, your chances of success will be that much better.
Setting up regularly scheduled transfers from a chequing account
You want to save towards your child’s education, but once you’ve paid the laundry list of bills – the mortgage, car payments, utilities, gym membership and the list goes on – there doesn’t seem to be any money left. I feel your pain. The cost of living isn’t getting any more affordable, especially in cities like Toronto, but saving for your child’s education is far too important to put on the backburner. Make it a priority by contributing to an RESP and “paying yourself first.”
When you pay yourself first, you set up regularly scheduled transfers from your chequing account to your savings account. By contributing $2,500 per year – or $104.17 per paycheque, if you’re paid biweekly – you’ll be eligible for the full $500 grant each year for your child.
Struggling to come up with the extra savings? Try creating a family budget and tracking your spending. Look for ways to save on the categories where you’re most likely to overspend, such as clothing and restaurants. For example, consider buying your clothes on consignment or dining out less often.
Whenever your receive “found money” – a bonus, inheritance or tax refund – put it towards your child’s RESP for a 20 per cent top-up grant from the government.
Paying off holiday credit card debt
It’s hard to start saving towards short-term goals like a vacation and long-term goals like your child’s RESP if you’re dealing with a boatload of credit card debt from holiday spending.
There are two tried-and-true ways of paying off your credit card debt: the debt avalanche method and the debt snowball method (I discuss these in my upcoming book, Burn Your Mortgage). Using the debt avalanche method, you’ll aim to pay off the debt with the highest interest rate first. This is sensible, since it’s costing you the most in interest charges. The sooner you pay it off, the better. For example, if Visa #1 has an interest rate of 19 per cent and Visa #2 has an interest rate of 29 per cent, you’d pay off Visa #2 first, while paying the minimum on Visa #2 to keep your credit score in good standing.
The second method is called the debt snowball method. Instead of paying off the debt with the highest interest rate, you’ll focus all your efforts on paying off the debt with the smallest balance first. (Sometimes this is also the debt with the highest interest rate, too, but that may not be the case). The premise behind this is that you’ll be motivated as you pay off one credit card at a time. For example, if Visa #1 has a balance of $1,000 and Visa #2 has a balance of $3,000, you’d pay off Visa #1 first (since it has the smallest balance), while paying the minimum on Visa #2 to keep your credit score in good standing.
Choose the method that works best for you and reach debt freedom sooner in 2017.