financial health check

At a time of year when giving is tradition and spending is rife, I thought I’d share 5 financial health tips you can follow right now to help you control and improve your financial picture.

1) Revisit Your Household Budget

Actually sitting down with a pen and paper (or these days, a spreadsheet) is the best way to get an accurate look at your household budget. If you wonder how often you should review your financial plan, try doing it once every year at a minimum, or whenever there is a significant life event, such as a change in an employment situation, unexpected expenses, or an addition to your family.

If you’re single with no property or dependents, doing a budget is relatively simple. However, once you have a family, along with mortgage and other debts, creating a spreadsheet from scratch can be a time-consuming and often frustrating task.

You can download this free budget template to help you get started.

Taking the time to calculate and understand your household budget will help you stay on track to your financial goals, and steer you clear of any unnecessary overspending or debt pitfalls.

2) RRSP Contributions

Many people don’t think about making their annual RRSP contribution until close to the deadline, which usually falls about 60 days after the turn of the calendar (March 1 or February 29 in a leap year). The truth is that you should contribute as much as you can when you get your tax assessment in May.

Your tax assessment will show how much you’re allowed to contribute for that year. Your allowable contribution includes the maximum amount for the given year, as well as any carry-forward amounts for previous years in which you didn’t contribute.

There are two key tax advantages to contributing to your RRSP:

  • You realize an immediate tax benefit by deducting your contribution from your gross income at tax time, reducing the amount of income tax you pay that year
  • The income earned within the RRSP is tax-sheltered until it’s withdrawn, which at retirement should be at a much lower tax rate than it was during your working years

If you have to borrow to contribute to your RRSP, make sure you can handle the loan payments without going into further debt, and use your tax return money to pay the loan down.

Otherwise, a good rule of thumb is to deposit your tax refund into a Tax-Free Savings Account (TFSA). TFSAs offer a great opportunity to invest without paying any tax on dividends you earn within the account. The penalties to withdraw money are much less than with an RRSP, giving you even greater flexibility should need quick access to cash.

3) Review Your Life Insurance Policy

When shopping for life insurance, many people simply zero in on an amount and purchase the policy. Sounds simple, right?

But in reality, the amount of insurance you should purchase depends on many factors, including your age, obligations, and the needs of your family.

For example, should you die leaving behind young dependents, your policy should be higher to cover your children’s living expenses until they’re grown, as well as their post-secondary education.

However, if you have grown children with their own families, your obligations to them will be much less, so your life insurance policy can be lower, which means lower premiums for you.

Be sure to revisit your insurance needs and calculate how much coverage you really need on an annual basis.

In any case, you’ll want to leave enough to cover any estate taxes and funerary costs in accordance with your wishes. Be sure to leave details in your will to avoid unnecessary complications during what will already be a difficult time for your family.

4) Review Your Credit and Cost of Borrowing

Have you heard of Blue Monday? Falling on the third Monday of every January, it originated as a publicity stunt from Sky Travel, but has since become part of Western culture as the “most depressing day” of the year.

One of the reasons is that it occurs around the time our December credit card bills arrive, and we have to pay for all of our Holiday merry-making and generosity.

How is your current credit card or line of credit situation? If you’re carrying a balance month-to-month, do you know how long it will take to pay off, and how much the debt will actually cost you?

If you’re not sure, use this credit card interest calculator for a realistic look at the length and cost of your debt, providing you don’t use your credit card during the payback period.

If you can, try to cut expenses and pay off as much as you can. Paying just the minimum might make you feel good in the short term, but over time can cost you a lot more than you might think.

5) Review Your Credit Report

If you’ve ever borrowed money or gotten a credit card, there’s a credit file on you. Do you know what your file says about you?

There’s never a bad reason to have a good credit report. If you want to borrow money, purchase something over time, or rent an apartment, your credit report needs to be as clean as possible to show that you’re a good risk. If for some reason a company denies you a product or service that requires credit, your credit report will tell you why.

The good news is that credit reports are easy to get and, in some cases, free. There are two national credit bureaus in Canada: Equifax Canada and TransUnion Canada. Both will send you your credit report free by post, or charge you for instant online access.

These 5 financial health tips can be used any time of the year, but when it comes to tasking control of your financial picture, there’s no time like the present!

Robert Charles, B.A., CIRP, Licensed Insolvency Trustee, is the founder of Charles Advisory Services.

For every debt problem, there’s a debt solution. Since 2006, Licensed Insolvency Trustee Robert Charles and his team at Charles Advisory Services have helped individuals, families, and businesses in Toronto move beyond debt towards financial health. Contact us today for a free consultation.

TIP : We all want to be generous during the Holiday season, especially when children are involved. But buying expensive gifts you can’t really afford might cause financial hardship, stress, and other problems down the road. Finding another source of revenue or borrowing from a family member are much better alternatives than maxing out your credit cards or lines of credit.