"Plans are useless, but planning is indispensable," Dwight D. Eisenhower once said. He was talking about planning military battles, but his point is instructive for finances, too.
This is because people have to be flexible when it comes to their actual plan, because circumstances can change. But without planning, people risk not being able to adjust to unforeseen circumstances.
"Canadians should focus more on the things they can control, like savings and expenses," says Justin Bender, portfolio manager at PWL Capital Inc. in Toronto. For most Canadians, this is the time to focus for 2015, no matter what the economy may do.
Here's a quick checklist of what should go into your financial planning:
1. Tackle your debt as soon as you can
Canadians are traditionally saddled with hefty credit card bills in January and February. While forecasts in the fall predicted a drop in holiday spending, Moneris, a credit and debit transaction processor, reported that spending by Canadians on the Saturday before Christmas was up between 4 and 5 per cent year over year, which means that many of us have bills to deal with now. "Canadians should first consider reducing or eliminating all their debts that have a high interest rate, such as credit card debts," Mr. Bender says.
2. Start saving
Set both short- and long-term savings goals, says Shannon Dalziel, investment adviser, also at PWL. "Setting up an automatic program is a good way to get started," she says. It can be as simple as a money jar for your vacation or a more formal fund, such as a tax free savings account (TFSA). Since 2013, Canadian residents 18 or older have been able to put $5,500 a year into a TFSA (the limit was $5,000 from 2009 to 2012).
You can contribute for years you have missed, but be careful when withdrawing the money – there can be tax penalties if you take out money and recontribute in the same calendar year. Ms. Dalziel says it's also a good idea, if you've been able to pay your credit card balances, to set up an emergency fund, "so you're not scrambling again in 2016 to pay off your cards."
3. Consider your circumstances
Are you at the beginning of your career? Almost ready to retire? The balance between your spending and saving will be different depending on your age and lifestyle goals. "Younger adults may put more emphasis on debt reduction and insurance planning, while pre-retirees may focus more on estate planning and saving," Ms. Dalziel says.
Most banks and financial advisers provide questionnaires that you can fill out to help you analyze spending and savings patterns and determine what kinds of changes you want to make in 2015. While these forms tend to be generic, they're also useful in that they force those who fill them out to look closely at their financial patterns. It can be time-consuming but also worthwhile.
4. Make sure you understand rules and deadlines
The deadline for contributing to a registered retirement savings plan (RRSP) for the 2014 tax year is March 2, 2015. The contribution limit this year (if you don't have a pension plan) is $24,930. Parents with children under 18 should also look at registered education savings plans (RESPs). At the same time as you plan how to put money into these types of plans you should also be aware of what rules apply when you withdraw funds.
5. Plan for the unforeseen and the inevitable
"Insurance coverage should be top of mind for Canadians," Ms. Dalziel says. "Ensure that your life insurance and disability coverage is adequate." Wills and powers of attorney should also be reviewed (or put in place if this has not been done already).
6. Think carefully before you borrow
Interest rates remain at record lows right now, but there are strong indications that rates are likely to rise within the year – perhaps not much at first but enough to make a difference if you have borrowed a lot of money. Mr. Bender and Ms. Dalziel both suggest limiting borrowing only for an education that will likely result in higher future earning or a solid business investment that is likely to pay off in the long term. "Borrowing for the purchase of a lifestyle asset like your principal residence is also likely to be a necessity for most Canadian families and would be okay," Mr. Bender says.
7. Don't get over-emotional
If looking at housing, for example, look at the whole picture. Do you really have enough for a down payment? Will you be overextended? Is it a better time to rent because your job is not secure? These are the kinds of questions you should ask when you plan for 2015.