As some of us are watching our gift budget balloon, it's easy to think about financial atonement in the year ahead. It's also easy to feel paralyzed by the endless choices for how to spend, save and invest.
Stop sweating it. Think about how personal trainers help people get fit: They don't show them a fancy new way to do a sit-up; they just make sure they do the sit-up.
The same applies to your financial health, so start by focusing on three core areas:
A disaster is something that can happen instantly and change your life catastrophically.
If the main breadwinner dies, the remaining family members may not be able to sustain their living standards. The solution: Get life insurance.
If you become unable to work because of accident or illness, you won't be able to pay your bills for very long. The solution: Get proper disability insurance.
If you lose your job, you will need to be able to make do, and employment insurance may not be enough, or perhaps you don't even qualify. The solution: Have an emergency fund (or investments you could draw from) that can cover at least three months of expenses.
2. Running a surplus
While we all know there are many people living beyond their means, there are just as many, if not more, who are living right at their means. That's not acceptable, either. Far too many households are simply a few paycheques away from their own credit crisis because they spend exactly what comes in the door, plus or minus a little bit every month. If you have a house, spouse, two kids and a car, I can guarantee you that I can find someone with all the same stuff as you who earns less. If they can do it, you can do it.
Without a surplus on your monthly budget, you can't become a saver. And if you're not a saver, you cannot become an investor. You can't accelerate the mortgage, you can't contribute to registered retirement savings plans or tax-free savings accounts or engage in any of the investment strategies you read about. Don't put the cart before the horse. Get into the habit of running a surplus each and every month.
3. Paying down non-mortgage debt first
The mortgage is a long-term fact of life for most of us, but credit-card debt is a no-no. Your monthly surplus should be directed first to paying off such high-interest debts as credit cards. Paying down credit that is being charged double-digit interest rates is one of the best investments you can make.
If you have multiple cards that you are carrying balances on, pay slightly more than the minimum on each and put as much as you can on the one with either the smallest balance (to get rid of it quickly) or the one with the highest interest rate (to get the most bang for your buck). You can also try to have them all paid off by transferring the balances to a line of credit with a lower overall interest rate. Then make sure you don't ever run up a balance on the cards again. Otherwise, you are just giving yourself more rope with which to hang yourself.
Preet Banerjee is a senior vice-president with Pro-Financial Asset Management. His website is wheredoesallmymoneygo.com.