7 tips to help you measure your financial goals
As the end of the year is fast approaching, it can be an opportunity to reflect on the year that has been and whether you are on track of meeting your financial goals you made in January…you did make a financial goal list is January, right?
You also probably made some New Year’s resolutions last year related to your health or other areas of your life and if you didn’t make any financial goals for yourself last year, start thinking about what they will be come January and put them into action!
Obviously creating financial goals can be done anytime throughout the year so if you are reading this…today is the day you need to make financial goals for yourself.
Here are 7 tips to help you achieve this year’s financial goals.
- Know where your starting point is
Before you can put a plan in place, you need to understand your current expenses, savings, debt, etc. You need to know exactly how much is coming in…how much is going out… and how much is left over. It important to take the time to create cash management statements or a net worth statement so you have a starting point.
It is also important to include your spouse or significant other in this process. Sometimes people don’t talk with their significant other about financial matters. It is important that you both have an understanding of the family finances and be able to set goals as a couple. Either of you should be able to step in and be knowledgeable about everything from the monthly budget to insurance and investments.
- To begin saving/investing, create a monthly spending plan
You need to understand where your money goes every month. Do you know if you are financially ahead each month after expenses? If your answer is ‘no’ to either of these questions (or I don’t know!), you need to create a spending plan to keep track. This will allow you to know where you need to curtail unnecessary spending and/or identify surplus cash to create an investment account.
- Know your credit history
Having and maintaining a good credit history is one of the most important steps you can take as an investor. If you want to borrow cash, this is huge. You must take every step to reduce credit card and other high interest debt. Ask yourself the following:
- Do you have at least 2 credit cards solely in your name? Lenders require at least 2 “trade lines” with a minimum 2 year history
- Do you use credit wisely?You must pay off your balances monthly or at least keep your monthly balance at less than 50% of your limit.
- Is your credit report accurate? Waiting until you for a mortgage or other credit is not the time to find out what your credit report shows. It is also not uncommon to find out your credit report is inaccurate. It is good practice is to request a copy of your credit report at least annually. In Canada, you can get a free report mailed to you or purchase your report online at www.transunion.ca or www.equifax.ca.
- Set clear financial goals
There are three factors you want to consider when thinking about your goals:
- Your priorities (values and beliefs);
- Your responsibilities (items that may be part of your monthly cash flow)
- Your dreams (vision and aspirations).
You should go through the process of setting and prioritizing your goals by utilizing all three factors. It is also important that your goals be specific, measurable, attainable, realistic and time sensitive (SMART).
- Organize your record keeping
Don’t wait until a financial audit or any other crisis to organize your financial documents and other important papers. It is critical for you (and significant other) to be able to locate documents in the event of a disaster or death.
You should be able to answer these questions:
- Do you have all the records you should?
- Are those records properly organized (if not…as much of a pain as it is, it will be worth it)
- Do you have a system to keep the records organized? (Creating a filing system is not difficult)
- Where do you keep the records and for how long? (There is a checklist at the bottom of this article)
- Have a strategy
Based on your goals and priorities, choose strategies which will help you create a diversified portfolio. By that I mean utilizing vehicles which will create multiple streams of income…preferably, vehicles which you have control of as opposed to money market funds, where you have no control.
If you are unclear how to do this, have a financial mentor to assist in your goals. Choose someone who is impartial and won’t make money on your decisions. To say this another way, if you are getting advice from someone who can profit directly from investing your money, how can they be impartial?
- Protect your assets
Warren Buffet said (and I’m paraphrasing) ‘above all, protect your capital.’ If you don’t have a strategy for your estate, the government will. Some key actions you should take are having a will and updating it regularly. This means:
a) Preparing estate planning documents;
b) Reviewing and updating beneficiary designations
c) Making sure all your investments are titled appropriately
Another aspect of protecting your assets is to review your financials every year. This will serve to keep your finances organized and help keep your financial goals on track or allow you to update your goals as your achieve them.
|Type of record||Length of time to keep, and why:|
Canceled checks/receipts (alimony, charitable contributions, mortgage interest and retirement plan contributions)
Records for tax deductions taken
|RRSP, IRA contribution records||Permanently
If you made a non-deductible contribution to an RRSP or IRA, keep the records indefinitely to prove that you already paid tax on this money when the time comes to withdraw.
|Retirement/savings plan statements||From one year to permanently
|Bank records||From one year to permanently
|Brokerage statements||Until you sell the securities
You need the purchase or sales slips from your brokerage or mutual fund to prove whether you have capital gains or losses at tax time.
|Bills||From one year to permanently
|Credit card receipts and statements|| From 45 days to seven years
|Paycheck stubs||One year
|House/condominium records||From six years to permanently