With the new year coming up, people often use this time — post-holidays of course — to review their finances and their financial goals for the coming year. In a recent article with Elle Canada, personal finance expert Melissa Leong says this is especially important now considering today’s global economic climate, which is seeing inflation rates continue to rise alongside interest rates and a looming economic recession.
“We visit a dentist regularly to make sure our teeth are healthy and take our car in for a scheduled oil change, but sometimes we don’t think to look at what’s happening with our money,” Melissa said. A regular “tune-up” or maintenance plan can help keep finances in check and address potential issues long before they become big problems.
“I might do one after a period of overspending, like after the holidays, when I feel out of control or lost or confused about my money situation,” Melissa continues.
The author of the award-winning finance guide Happy Go Money, Melissa, among other finance experts, shared four steps to consider in your next financial checkup.
1. Take Inventory
You can’t improve your finances without fully understanding your financial situation. The first step in a financial checkup is to determine your after-tax income and spending, especially if you don’t already have a budget tracking this.
“Clarity will bring comfort,” Melissa says. “You can’t start to make your money work for you unless you look at how much you’re making, where your money is going, and what you can do to make a positive impact.”
You can also use this opportunity to explore your discretionary spending and learn more about your spending habits and patterns — including which ones you want to keep and which you want to stop.
2. Identify Improvements
Once you have a clearer picture of your cash flow, you can start making improvements and changes where needed. This could include cancelling unused subscriptions, Melissa says, or reviewing fixed expenses, such as cell phone plans, and removing any unused features or looking for a better deal elsewhere.
The more your lower your monthly costs, the more you can do with your money elsewhere.
3. Plan For the Future
It’s important to keep your eye on the future. If you find savings, you might consider diverting some of that money towards a TFSA or RRSP. A review of your investments should also be a core component of your financial checkup. Double-check you aren’t paying too much in fees and that your investments are helping you attain your long-term goals.
4. Shore Up Your Emergency Fund
Melissa also suggests that any found savings while reviewing and tweaking your discretionary spending should be put in an emergency fund. This is especially important considering that we just lived through a pandemic and that more uncertainty may be ahead. It’s recommended to have 3-6 months of living expenses set aside in a savings account.
One of Canada’s best-loved authorities on personal finance, Melissa Leong is on a quest to help people better manage their money while maximizing their happiness. She delivers high-energy, informative, and practical talks about behavioural economics, positive psychology, and personal finance.
Contact us to learn more about Melissa and what she can bring to your next event as both a host and keynote speaker.