Financial Fitness: New Year’s financial resolutions worth making

New Year’s resolutions are easy to make but harder to keep.

This year, for a resolution with real significance, why not commit to improving your personal finances? Here are four ideas to help you stay on target toward your goals, particularly a comfortable retirement.

Understand your financial picture — assets and debts — to come up with an appropriate plan to get you where you want to go.

Take full advantage of the government allowances for RRSP, TFSA and RESP as part of your retirement and children’s education planning. Don’t miss out on the chance to utilize these valuable savings vehicles. Contribute the maximum amounts, if you can, because all three programs have key tax advantages.

The Registered Retirement Savings Plan (RRSP) is an attractive structure for housing a portfolio of investments, such as stocks, bonds, mutual funds and more. Your contributions can be deducted from your income, which will help reduce the amount of income tax you pay. As well, any growth earned in your RRSP is not taxed as income until funds are withdrawn, meaning your RRSP investments grow tax-deferred so the total value may grow more quickly.

You can also save in a Tax-Free Savings Account (TFSA), where you can take money out whenever you desire and no tax is paid on that withdrawal. Whatever growth occurs within the account remains tax-free. That means the TFSA can be a great supplement to your RRSP.

The Registered Education Savings Plan (RESP) allows you to save and benefit from tax-deferred growth until the accumulated amount is used for financing your children’s or grandchildren’s education. Although you are not able to deduct your contributions from your income, the money you contribute can generate additional funds through the Canada Education Savings Grant (CESG), a program that adds government-sponsored contributions to your RESP.

Build an emergency fund by having some easily accessible cash kept aside specifically for emergencies. If something unforeseen happens, you want enough in your emergency fund to avoid relying on your credit cards for the necessities of life.

And it’s just as important that you not tap into your retirement savings, or you could put your retirement plans in jeopardy.

So you might find it prudent to get the equivalent of three to six months’ worth of living expenses into an emergency fund.

Cut your debts. It sounds simple, but it’s difficult to achieve. Remember that every dollar that doesn’t go toward a debt payment can be applied toward your retirement savings. You might want to commit to borrowing only when necessary, shopping around for competitive rates, paying off credit card balances every month, consolidating your investing or banking in one place, and generally looking for ways to cut whatever costs you can while living within your means.

Here’s one other commitment that might be the most valuable of all: If you don’t already have a financial advisor, make this the year you get one. A qualified financial advisor can objectively evaluate your situation, suggest appropriate financial strategies for helping you achieve your long-term objectives, and maybe even help you stick to your financial New Year’s resolution.

Deborah Leahy is an Investment Advisor with Edward Jones, and member of the Canadian Investor Protection Fund.

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