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7 quick actions you can take this month to improve your financial health in 2021. 

By Scott Boassaly, MBA, President and Principal Advisor at Balance Financial

In January, our focus was on starting the year off right following the craziness of 2020. As life starts to return to something more normal over the course of 2021, you now want to shift your attention to making sure you’re set up for personal economic recovery. It’s time for a spring cleaning.

Below, you’ll find 7 key financial actions you can take this month to get your financial house looking spic and span.

REGULAR CONTRIBUTIONS
There’s an argument to be made for make lump sum contributions to investment plans when the cash is on hand. First, you get it in there so it’s not available to spend. Second, it’s in as early as possible so it starts to grow right away. And third, if you time it just right, you can pick up investments when they’re trading at a low cost. In fact, some research suggests that, over the long-term, lump sum investing can yield greater results than regular contributions.

But that doesn’t always work out in practice. Many Canadians find it hard to accumulate lump sums to invest without borrowing that money. Also, once we’ve saved up the money, the price of investments may not necessarily be attractive and we may be tempted to invest it when prices are high, or we hang on to the cash for months waiting for prices to fall, causing unneeded stress and anxiety. It becomes very hard to stick to an investment plan, and therein lies the issue with lump sum investing.

In practice, regular contributions over the course of many years may prove to be the more effective approach to generating greater gains on our investments. This tactic, known as dollar-cost-averaging, involves contributing a determined and affordable amount every month (or every two weeks) throughout the year. The money automatically comes out of your bank account so you don’t even notice it’s gone, making it easier to stick to the plan. Every time you make a contribution, you purchase investments at the current price. Since investments go up and down, sometimes daily, each purchase is at a different price. However, over time, you’ve purchased enough units or shares at lower prices to result in a lower average purchase price. This yields greater gains overall over the long-term.

PAY OFF DEBT
Hopefully, you’ve paid off the Holidays. But, if you’re like many Canadians, your income may have been impacted by the pandemic and now you’re trying to get by without going too far into debt. Set aside a modest amount each month and, at the end of each month, apply that extra to your debt if you don’t need it for essentials. It will go directly to principal and will help pay down your debt faster.

PAY DOWN MORTGAGE
If income is unpredictable but you think you can afford a few extra bucks each month to pay your mortgage down faster, consider opening a TFSA and depositing money into the TFSA every month (or every two weeks). Every three months, if you haven’t needed that money, use it to make an extra payment on your mortgage. It will go directly to principal and help to pay down your mortgage faster. Does anyone still have mortgage burning parties?

BUDGET
There are two kinds of budgets: yuck and yikes! The yuck budget, aka prescriptive, entails allotting a certain amount of money to each expenditure. For example, you allow yourself to spend no more than $400 a month on groceries, or $1000 on beer! It’s yucky. We don’t like being on diets, let alone financial diets. Our amounts are arbitrary and we tend to binge after a few months because we’re tired of not having any fun. That derails the value of the yuck budget. The yikes! budget is a descriptive budget. It tells us how we’re spending our money. The truth hurts and can be shocking (What?! $1000 on beer last month?!) but knowledge is power and you can manage your spending more appropriately if you know where your money is going. Even if cash flow isn’t a challenge, take two to three months to do some descriptive budgeting and see what improvements you can make.

FINANCIAL PLAN
If you didn’t have the chance in January and February to review your financial plan with your advisor, make the time now. And, as always, if you don’t have a written financial plan, get one.

RETIREMENT FORECAST
Even though retirement planning is part of comprehensive financial planning, many Canadians focus primarily, or even exclusively, on retirement. Now’s a great time to review your retirement forecast with your advisor. Your situation has likely changed over the past 12 months and getting an update on where you’re headed in five or 10 years will help keep you on track to get where you actually want to be.

LIFE INSURANCE REVIEW
Canadians own over $4.7 trillion in life insurance coverage1. Still, nearly one third of young adult Canadians don’t have any life insurance at all2. Further, the majority of households that do have life insurance rely exclusively on group insurance through work3. While the idea of life insurance still makes many Canadians’ skin crawl, there are few financial products out there that can solve a problem more efficiently than life insurance. If you do not have life insurance, aren’t sure if you have enough, or aren’t certain you have the right type of coverage, ask your advisor for a full review. A complete and reliable review takes less than an hour, but could save you or your family a lifetime of heartache and financial distress.

1 Canadian Life and Health Insurance Association (CLHIA), Canadian Life and Health Insurance Facts, 2018
2 Environics/TD Insurance, 2017
3 Life Insurance Marketing and Research Association (LIMRA), Household Trends Study, 2019

For more information, please contact Balance Financial

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Scott IconScott Boassaly, MBA, President and Principal Advisor at Balance Financial

Scott founded Balance Financial in 2019, the culmination of a 15-year journey to provide accessible and customizable financial planning for clients. In his role as President and Principal Advisor, Scott develops business strategy for the company while managing his own practice. Working closely with his clients, Scott allows people to tell their story and write more chapters as they pave their financial paths together.

A former high school teacher and college instructor, Scott continues that passion for education by providing retirement workshops to the Federal and Provincial public service, as well as free public workshops to adults and teens.