New Year financial goals (and the habits to achieve them)

Jordann Brown
by Jordann Brown December 29, 2020 / No Comments

The holidays are fast approaching, and right on their tail comes a new year, and the opportunity for a new you, with new financial resolutions. Every year thousands of Canadians set New Year financial goals ranging from paying off debts, investing, and saving for a down payment on a home.

Unfortunately, the path to success with financial goals isn’t linear, and setbacks and slow progress are to be expected, especially during a global pandemic, when your job may not be secure, or your living arrangements may be unpredictable.

Fortunately, I’ve been setting financial goals for almost a decade, with an excellent track record for success. The key is to set manageable goals, plan for success, and understand that lofty goals take time and consistency to achieve. Here’s how to tackle some of the most common financial resolutions you’ll set in 2021 and the steps you should take to ensure success.

Paying off debt should be your first New Year financial goal

Setting a resolution to pay off debt is one of the best things you can do for your finances in 2021. The interest costs of debt are a drag on your finances, and eliminating your monthly debt payments frees up your funds for other goals like saving for big purchases or investing for your future. Here are the exact steps I took to pay off $40,000 in debt.

Set realistic goals

When setting the goal to pay off debt, it’s essential to set a specific and realistic dollar amount. If you’ve never paid off debt before, start small. If you reach your goal before the end of the year, you can always celebrate the win and re-evaluate.

Choose your strategy

Once you’ve determined how much debt you are planning to pay off, you’ll need to decide your strategy. There are two primary strategies for debt repayment if you have multiple debts:

  • Debt snowball – start with the smallest debt first, and once that is paid off, direct your payments towards the next smallest debt, and so on. This strategy sets you up for quick wins and helps you build momentum in your debt repayment journey.
  • Debt avalanche – in this strategy, you’ll tackle the debt with the highest interest rate first, regardless of balance. The debt avalanche is the fastest way to pay off your debt but requires more discipline.

Set a budget

If you know how much debt you want to pay off this year, you can use a simple loan calculator to determine how much you should pay off each month to meet your target goal. After you’ve done this, it’s best to incorporate this payment into your budget. If you don’t have a budget, there are several excellent templates available online, or you can use an app like Mint.com to automatically track your expenses.

Make it automatic

Setting up automatic payments is a fantastic way to pay off debt passively. Set up an automatic extra payment to go towards your debt each month, and let the automation keep you on track to debt freedom.

Make extra payments

If you’re an overachiever like me, you want to get rid of your debt as fast as possible. Speed up your debt repayment process by making extra payments on your debt whenever you have extra cash available from overtime, birthday presents, and income tax refunds.

Buy a house (if you want one)

Buying a house is the goal for so many people my age, but in today’s era of rising home prices, it’s not as simple as hiring a real estate agent and starting to look. The process of buying a home begins months or

Set a maximum purchase price

The first step in the home buying process is market research. Determine where you’d like to live and in what type of home (for example, a townhouse or a condo). Analyze how much homes cost in your ideal neighbourhood and set a maximum purchase price based on that information. You can use a mortgage affordability calculator to help guide you on how much you can afford to borrow and a mortgage payment calculator to forecast how much your home will cost to maintain monthly.

Set a down payment goal

Odds are, you can’t afford to buy your dream home in your dream neighbourhood. You’ll need to compromise by lowering your maximum purchase price or increasing your down payment. Putting a more significant down payment on a home can make the home more affordable month-to-month. Use a mortgage payment calculator to play around with different down payment sizes to see how they affect your monthly payment. From there, you can determine precisely how much you should save for your down payment.

Start budgeting

After you’ve determined how much you’ll need to save for your down payment, it’s time to gather your funds. You might consider getting a gift from a family member or using the First-Time Home Buyer’s Plan, but the bulk of your money will probably come from savings. So open a high-interest savings account, and make a line item in your budget for “House Down Payment.”

Change your habits to save more

The more you can afford to put into savings, the faster you’ll become a homeowner, so it’s smart to cut all other expenses temporarily so that you can put more money towards savings. Some people choose to move in with their parents or take on second jobs to increase their income. These are significant changes, but they’ll help you reach your goal of becoming a homeowner much faster.

Start investing 

Investing is one of the single most important steps you can take to ensure the future-you has a comfortable and happy retirement. For some, investing can be a daunting prospect, but it doesn’t have to be. Here’s how to get started with investing in 2021.

Educate yourself

You don’t need to know the ins and outs of every stock on the Toronto Stock Exchange (TSX) to invest, but you should have a basic working knowledge of how investing works. A great place to start is with books. My personal favourite is Millionaire Teacher, which lays out hands-off index investing in a very user-friendly way. A Canadian teacher writes it, so it’s in lingo you understand (TFSA, RRSP, etc.)

If books aren’t your thing, there are several primers available online. My personal favourite is Wealthsimple’s investing masterclass. Wealthsimple uses a Nobel prize-winning passive investing strategy, and they explain it all in their masterclass.

Decide on a platform

After you decide to start investing, you’ll need to decide where to put your money. Your local bank probably has a licensed financial advisor to sell you mutual funds, but these funds have some of the highest fees in the world, which will eat into your returns long term. An excellent alternative to mutual funds from a traditional bank is to invest your money with a Robo-advisor.

My personal favourite is Wealthsimple due to its low fees, beautiful interface, low minimum account balance, and extensive learning centre. There are many Robo-advisors available in Canada today – your traditional bank probably even offers one.

How much can you afford?

You don’t need to be a tycoon to start investing. Most Robo-advisors will let you open an account with as little as $100. If you are new to investing, it’s more important that you establish the habit of regularly contributing than to invest thousands of dollars right away.

That said, if you have ample room in your budget to invest, you should aim to contribute at least 10% of your income each month.

Remember, investing is a long-term activity

Now, here’s the hard part of investing – staying hands-off. Investing your money is a long-term proposition. Your investments will go through ups and downs, and it’s essential to resist the urge to meddle with them during the down periods or withdraw money for immediate needs.

Your money needs to stay put to take advantage of compound interest – which Einstein called the eighth wonder of the world. If you invest your money and leave it to earn compound interest over the long term, you’ll find yourself sitting on a veritable gold mine of resources in your later years.

If you withdraw money or fuss with your investment strategy during times of turmoil, you’ll reduce your future returns and rob yourself of the chance to live comfortably in your later years.

Be sure to make it easy and satisfying

Investing is easiest if you make it an automatic part of your monthly budget. The simplest way to do that is to create a line item in your budget for investing and set up automatic contributions. Make investing something that is part of your monthly financial commitments, like paying your cell phone bill. Once your nest egg starts to grow, you’ll find logging into your investment account portal extremely satisfying.

The bottom line

While we covered a wide variety of financial goals today, you’ve probably noticed some themes repeated. That’s because the real key to setting and achieving financial goals boils down to four fundamental principles:

  • Measurable
  • Attractive
  • Easy
  • Satisfying

If you can make those four principles apply to your financial goals, you can set any goal and have a good chance of achieving it.

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