Have you ever stuck to a New Year’s resolution? Me neither. It doesn’t take long for the best of intentions to get side-tracked by something more urgent, tempting or simply more comfortable and familiar. In many ways, our resolutions fail because they take time and repetitive effort when there is a myriad of opportunities to change our minds. This year take 30 minutes to set yourself up for success.

The goals of this exercise are:1) to open your eyes to what your lifestyle costs; 2) establish an automatic savings strategy, then spend the leftovers in a way that optimizes your standard of living. It’s based on the premise that your lifestyle and debt expenses should comprise no more than 60% of your gross (before tax) income, and that taxes and long-term savings make up the remaining 40%. For most people, the focus is on the former and the latter is an after-thought.

Together, we are going to prioritize a savings commitment that frees you to establish the best life you can. So, let’s dream a little! What does the coming year look like for you? Are you attending a special event out-of-town for which you would like to set aside some money? Are you fed up with some chore and want to find a way to get a little help with it? Anything is possible as long as it is accounted for.
Each year, my husband and I take a peek at our calendars to see what the year has in store. Last year, we knew we couldn’t keep ignoring some home repairs that were threatening to hijack our budget, so we built our budget around that commitment. This year, my husband is turning 50 (sorry to out you like that, honey!) and we’re building our budget around a nice family trip. Identifying the main focus of our discretionary income and keeping this top-of-mind helps us to understand what else we can afford this year. I don’t mind going on fewer shopping trips with my friends if it means a family getaway to celebrate something special. Similarly, my husband doesn’t mind saying “no” to the occasional invitation to a hockey game, if it means that we’ll be building a great family memory together.

Ready to get started? Here’s what you’ll need:

  • Your final pay stub from last year
  • A calculator
  • Login information for your chequing account
  • Calendar

Step #1: Come Face-to-Face with Your Spend

  1. Look at your bank balance from January 1 of 2018.
  2. Subtract your bank balance from December 31 of 2018.
  3. Take out any unusual deposits or withdrawals, such as large cash gifts or other unusual items.
  4. Guess what? If you didn’t save it, you spent it.

Step #2: Set Up Your Savings Commitment

  1. Calculate 40% of your gross (before tax) income.
  2. Subtract the total amount of tax your employer withheld at source (refer to your final pay stub).
  3. Divide the difference by the number of times you are paid each year (12, 24 or 26), rounding up to the nearest hundred.
  4. Log into your online chequing account.
  5. Set up an automatic deposit for the amount and frequency determined in step “c” above. If you don’t already have an emergency fund, direct the automatic deposit to a high-interest savings account that acts as your emergency fund. If you already have an emergency fund, you can top it up, if necessary, or send the excess funds to your RRSP, TFSA, or both. If you need to choose between an RRSP and a TFSA contribution, then contact me at monique@upotential.com.

Step #3: Commit to Staying Out of Overdraft

  1. Put your credit cards somewhere safe but inaccessible to you on a regular basis. I mean it!
  2. Use your debit card for all purchases.
  3. Maintain a positive balance.

Yes, it’s that straight-forward. Since you cannot fall back on using credit, you can only spend what you’ve got in your bank account. Believe me, it doesn’t take long to figure out how many times you can buy a round of drinks before your mortgage or car payments bounce. In this manner, you’ll quickly learn how to arrange your lifestyle around your commitments— which, after all, is the best way we should be spending our hard-earned money.

Wishing you all the best for 2019!

Monique Madan, lead financial life strategist at Upotential, has been working in the financial services industry for over 15 years and has acquired a unique and sought-after perspective on personal financial planning. She has been featured as a financial advisor in the Globe and Mail and provided her guidance to the Financial Planning Standards Council (FPSC®) in the development of their current code of ethics and to Moody’s Analytics as a subject matter expert.