The realization that this year is coming to an end soon is one of relief and hope for many. Relief, because we can finally start putting the year behind us and hope for the new year ahead.
The COVID-19 pandemic has affected a lot of things, not least the housing market. As a result, you may not have met your financial goals. As we approach the new year, prepare your new year’s resolution with a solid financial plan.
Whether you are a new homeowner or an existing one, you can look forward to making more strides financially in 2021.
Resolutions for Homeowners
Here are some ideas for you to make your finances work for you in the coming year.
1. Take Advantage of Your Lump Sum Prepayment Privileges
Apply any windfall to your mortgage by taking advantage of the annual lump sum prepayment option may be a feature of your mortgage. These windfalls may be your bonus, an inheritance, a gift from a family member, or a tax refund from Revenue Canada.
You likely will not miss this money because your lifestyle has already adjusted to your current income. “The amount you apply goes directly to the principal,” states Ming Wong, COO pololoans. “This will reduce your total interest payment and allow you to pay off your mortgage faster.”
2. Prepare for Emergencies
Teachers of personal finance always emphasizes the importance of emergency funds.
Your emergency savings account should be a separate from your retirement account and other saving goals. You will contribute to this account regularly, and while accessible, is not touched for anything except emergencies.
As a rule of thumb, you should put away at least three to six months’ worth of expenses. This amount can seem daunting at first, but the idea is to put a small amount away after each pay cheque to build up to that goal.
3. Paying Off Existing Debt
Financially, these times are quite unprecedented, and debt accumulation is the last thing you want to do going into the new year and beyond. Here are some tips:
• Pay off the most expensive debt first
• Pay more than the minimum balance
• Halt your credit card spending.
“With today’s low interest rates, we can help consolidate your debt into a single low mortgage payment and improve your cash flow,” said Joe Digiambattista, EVP of pololoans.
4. Develop a Budget and Review it Regularly
A budget will allow you to determine in advance whether you have enough funds to do the things you want to do. Once the plan is complete, you would compare with how much you actually spend. Therefore, it is important for you to schedule a monthly review of your budget.
The quality of your financial budgeting going into the new year will determine if you’ll meet your financial goals. Setting goals is a great way to ensure your finances are on the up. You’d be able to constantly evaluate if you’re meeting them or not, and if you aren’t, you’d be able to know what to do.
5. Or…, create a Spending Plan
For some people, the idea of a budget is too restrictive. The don’ts of a budget in your mind can be stifling, and not to mention the fact that a budget review can be time-consuming and cumbersome.
With a spending plan, you can decide how much you can spend on necessities and other needs each month. Everyone likes the idea of spending money, so if you’re uncomfortable with the strictness of a budget, go for a spending plan. You should remember to set aside enough money to cover at least three months’ worth of your expenses in case of an emergency.
In any case, the result is the same, but the journeys are different.
Happy New Year! Stay Safe and Healthy.