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Top Five Tips For Financial New Year?s Resolutions

By J. Douglas Hoyes, CA, Trustee

It’s that time of year again: time to make our New Year’s Resolutions. At this time of year we all promise that we will lose weight, stop smoking, and get our financial life in order. I’m not a big fan of New Year’s Resolutions. I think if you want to make a change, do it, regardless of the time of year. If you want to lose weight, isn’t the holiday season the worst time of year to do it?

That being said, the start of a new year is as good a time as any to review our financial situation, and make a plan to deal with our debts. So, for those of you who will be making Financial New Year’s Resolutions this year, here are my top five tips starting the year off right:

First, set goals. If you don’t know where you are going, you won’t get there. What are your goals? You probably have long term goals, like buying a house or car, putting your children through college, or saving for your retirement. You also have short term goals, like buying a new pair of shoes. Whatever your goals are, write them down, and make them specific. Don’t write “buy a car”. A better goal would be “I want to buy a used car for $5,000, and I will pay cash, so my goal is to save $500 per month for the next ten months.” That’s a specific goal.

Second, make a plan to reach your goals. You want to save $500 per month: how are you going to do that? Unless you can increase your income, the only way to save money is to reduce your expenses. Which expenses will you cut? You need a specific list of exactly which expenses you will reduce. For some ideas, there are lots of money saving tips on the internet.

Third, the best way to reach your goals is by making a personal budget. A personal budget is simply a list of what you make and spend each month. Unless you make a budget you won’t know what you spend, so you won’t know which expenses to cut. The best example of using a budget to analyze your expenses is the story of Joe (not his real name), who saved a lot of money by making his own coffee and bringing his own lunch.

Fourth, if you have debts, make a plan to pay off your debts. Every financial expert will tell you to start a savings plan, but if you are in debt a savings plan is not your priority: your priority is to get out of debt. Start by making a list of your debts: write down the name of the lender, the amount owing, and the interest rate. Many people have no idea how much they owe in total until they write it down. Then, prioritize your debts in the order that you want to pay them off. Here’s a tip: don’t make the mistake of trying to repay your smallest debts to get them off your books; instead, start with your highest interest rate debts. Paying off a department store credit card with a 25% interest rate will save you more money in the long run than paying off your line of credit with a 10% interest rate.

Finally, if your goal is to get out of debt, and if your budget tells you that it will be impossible to deal with your debts on your own, research your options and then get professional help. Here are some great resources:

• The Hoyes Michalos team has assembled the answers to the most frequently asked bankruptcy questions (you can read them or listen to the answers)
• Explore your bankruptcy alternatives on our bankruptcy alternatives page
• Use a Debt Options Calculator, a free tool that shows you the cost of various debt management options
• Go to the Bankruptcy Canada On-line Support Group, where you can anonymously discuss your debt problems with other people in debt
• If you prefer to learn by watching, check out Hoyes Michalos videos about bankruptcy and bankruptcy options
• Or if you prefer to listen, Hoyes Michalos on the radio answering your bankruptcy questions.

Here’s a simple New Year’s Resolution: contact us for more information. You can phone us at 310-PLAN (no area code required in Ontario), or call our office closest to you, e-mail us your question, or complete our on-line evaluation and one of our experts will contact you with suggestions for your specific situation. This can be the year you finally deal with your debt, but your fresh start will only come when you make the call.

Full post as published by Hoyes Michalos and Associates Ontario Personal Bankruptcy Blog on December 28, 2009 (boomark / email).