New Year’s resolutions typically revolve around health, whether physical or financial. If these are to succeed much past January, you need to encapsulate your goal into a simple mantra that can become engrained in your behaviour.
For example, those pursuing the twin goals of losing weight and improving physical fitness can use the simple four-word mantra: “eat less, exercise more.”
Applying the same idea to your finances, perhaps “spend less, save more,” will work similar wonders, even if you have to tape it on your fridge. This ties in with all the themes about financial independence we’ve been describing since this blog began. Whether you’re still digging yourself out of debt or are well along the highway to building wealth, spending less is the starting point, i.e., guerrilla frugality.
Practically speaking, this will entail identifying unnecessary occasional and regular purchases. I suspect many of the latter will be automatic commitments you’ve set up via pre-authorized chequing arrangements or on credit cards. Many of these purchases are regarded as essential, such as Internet access, but perhaps you can live without that deluxe set of extra movie channels on your cable TV bill? Or perhaps you’re a bit too quick to order the latest bestseller when a simple trip to the library can get you the same results for free. I still do this myself to get books on tape or CDs for the long commute to work. There’s no shortage of blogs, books and social media gurus out there who specialize in dispensing tips on frugality.
Since spending and saving are entwined like yin and yang, there should be a direct correlation between decreased spending and increased saving. But you should still endeavour to automate the process. If you’ve identified $300/month in decreased automatic spending authorizations, then you should immediately set up an additional $300/month in pre-authorized debit outlays into your savings or investment accounts.
One of the first acts of savings our family initiates early every new year is the ritual $5,000 contribution to a Tax Free Savings Account (TFSA). 2012 is the fourth year you can contribute to this, bringing the total contribution amount per person to $20,000 ($40,000 per couple).
A TFSA is the best tax shelter out there and an upfront lump sum contribution best leverages this opportunity. However, if finances are tight, you can certainly set up a monthly arrangement: 12 payments of $416.66 works out to approximately $5,000.
Have a healthy new year: physically and financially. And remember, “spend less, save more.”
Jonathan Chevreau is the National Post’s columnist and author of Findependence Day.
Four words is too many, Jon
I like the positive part of a mantra. The negative is implied. That means “eat less, exercise more” becomes “exercise more”. That in turn can be simplified to “exercise”. That’s not the same as working out, but easier to remember.
Whatever the approach, the key to achieving is sticking with the goal.
Thanks, Promod
I guess the one-word version then would be “Save!”