About 41% of Canadians have made a new year’s resolution about their finances this year, according to Global News. Behavioural finance expert Preet Banerjee wants to make these resolutions a reality for you by sharing three simple tips to level up your finances in 2022.
Preet’s actionable strategies, outlined in his new YouTube video, can be implemented in one day and, the best part — they don’t require ongoing effort.
“Think of it like signing up for a gym membership but not having to go and still getting in the best shape of your life,” Preet said.
Tip #1: Subscription Audit
Conduct an audit of your automatic expenses to determine what should stay and what should go. Everything is a subscription these days, Preet said, and it’s far to easy to sign up and forget about them. The subscription pay model isn’t necessarily bad, he added, but you do want to make sure you’re actually benefitting from them.
“It will shock you to see just how many subscriptions have creeped their way into your monthly expenses and just kind of live there like furniture in your budget,” Preet said.
If you can find $83.33/month in automatic monthly expenses that you can get rid of, that’s $1000 of savings in a year right there. Here’s how to do it:
- Log into your credit card and online banking providers and pull up your transaction history for the last couple of months.
- Scan all of the items that are automatic expenses and list them out with the amounts. This could include bank fees, insurance premiums, internet service providers, streaming sites, etc.
- Categorize these automatic expenses into one of three categories: keep, reduce, and eliminate.
The keep pile is for those that you can’t do without, can’t negotiate down, and that you are getting good value out of, Preet said.
The reduce pile is for those that can be downgraded or negotiated, or possibly find better value for through a competitor. For example, Preet’s cell phone habits changed dramatically over the pandemic. Homebound, he no longer needed such high rates of data, so he changed his plan to save money instead.
The eliminate pile is for those subscriptions that you no longer need or use. You can, of course, always add them back later, Preet said, but take a break from them now and see if you actually miss them. Preet had a premium credit card with a $500 fee that, prior to the pandemic, was worth it because he was traveling a lot. With the pandemic keeping him at home, the cost didn’t outweigh the benefits anymore, so he eliminated it. That’s not to say he won’t need it again, but he might as well save the money while he can.
Tip #2: Start an Automatic Savings Plan
When Preet was a financial advisor, he worked with several clients that had accumulated large amounts of wealth over time. This weren’t business owners with successful businesses, they were people working in salaried jobs. He asked them all the same question — if they could contribute one thing to their financial success, what would it be? Each of their answers were the same, Preet said, it was making their long-term savings automatic. Setting up a simple, periodic automatic transfer from your back account into an investment portfolio will yield huge gains.
“After you set it up, and after a few months, most people don’t even feel the pain of saving anymore,” Preet said. “You get used to it and, in fact, seeing that balance start to increase over time is incredibly motivating.”
For example, Preet said, someone at age 18 who sets up an automatic savings of $100 per month into a long-term investment portfolio with a 5% rate of return, will see a savings of $220,000 by age 65.
Of course, the amount you save will depend on your income, life situation, and expenses, Preet said. For some people, $100 may seem like a lot and for others, it may seem too little. But if you haven’t started an automatic savings plan, Preet said, you need to start it now no matter how much or how little you’re putting away. Just set it up, Preet said.
What’s the right amount for you? Preet recommended choosing a number that seems just a little too difficult for you. Worst-case scenario Preet says, you can dial it back after a couple months; best-case scenario, you get a huge leg up.
Tip #3: Increase Automatic Savings At Least Once a Year
This is a powerful tip, Preet said. As he mentioned above, $100 invested each month since age 18 with a 5% rate of return can turn into $220,000 by age 65. Increase this by 5% each year, Preet said, that $220,000 could turn into $550,000.
Check out Preet’s free finance calculator that he created using a Google sheet. You can enter in your own numbers to determine how much you could accrue over time, based on your age, current investments, and automatic savings.
The takeaway advice, Preet says, is to ensure you increase your savings regularly. Preet suggests a 5% increase as a minimum, but recommends choosing a percentage that may seem like a bit of a stretch. If it is, you can scale it back, but if it sticks, it’ll have a major impact over time, he says.
Bonus tip — set a repeating reminder in your calendar to increase your contribution amount, whether it’s on January 1 or your birthday, or both, if you want to be more aggressive. This simple small change could end up doubling your long-term savings, Preet said.
Hear from the expert himself in the video below:
Originally trained as a neuroscientist, Preet Banerjee now excels within the world of finance. As a keynote speaker, he inspires audiences to become financially empowered through his world-class expertise and unique ability to take the complexity out of money matters. He also speaks to why we are hard-wired to make bad decisions about money and, more importantly, what we can do about it.
Interested in learning more about Preet and what he can bring to your next event as a popular, public speaker? Email us at [email protected].
