This year, why not prioritize your financial well-being?
The start of a new year is the perfect time to take control of your finances and set yourself up for success. Whether you’re recovering from holiday expenses or simply looking to make smarter financial decisions, a new approach can help you reach your goals.
Taking a moment to reflect on your current habits, set achievable goals, and create a realistic plan can make all the difference in building financial confidence.
Below, I’ll share practical tips to help you hit the reset button and start the year on solid financial footing.
1. Use your current finances as a basis
If you’re like many, you may be starting the new year feeling not so happy about your finances. Maybe you went over your budget on holiday gifts, didn’t meet the savings goals you set last January, didn’t get the promotion you were hoping for, or faced other unexpected financial setbacks.
The first thing you should do heading into 2025 is record your current finances. Take screenshots or write the following:
— how much you saved last year;
— how much you earned last year;
— how much you invested last year;
— how much debt you currently have; and
— the current balance of your bank accounts.
This will be your foundation and your goal should be to maintain the good habits you have maintained and improve the areas where you feel you have fallen short.
2. Reflect on your financial habits
Now that you have a foundation to work from, take a few minutes to reflect on some of the habits (good and bad) that led you to that foundation.
What spending category did you spend the most on? How often did you invest money? Did you have to tap into your emergency savings? How much money did you spend per week on eating out or on recreational activities?
In this case, it may be a good idea to keep a journal and take written notes so you can begin to formulate an action plan to make the changes you want to see.
3. Be brutally honest with yourself
As you reflect on your habits, start by writing down all the little things you could do differently to put yourself in a better position. Be brutally honest with yourself and recognize the areas you neglected.
At the same time, recognize any positive habits or financial steps you’ve taken throughout the year, even if it was something as small as improving your credit score by 20 points. What are some ways you could combine those good habits to create great habits?
4. Set SMART goals
Using the SMART framework is a great way to make sure your new financial goals are feasible and achievable.
SMART stands for Specific, Measurable, Attainable, Relevant and Time-bound. For example, instead of saying “I want to save money,” a SMART goal would be “I will save $10,000 by December 31 for a down payment.” This approach keeps your goals clear and trackable.
Break larger goals into smaller milestones to stay motivated. For example, saving $10,000 could mean saving $833 monthly or $192 weekly. SMART goals provide structure and help you stay focused and on track all year long.
5. Create a realistic budget
Creating your budget starts by evaluating your income and expenses to understand where your money is going. I often recommend using the simple 50/30/20 rule:
— 50 percent of your income for essential needs like housing and food;
— 30 percent for discretionary spending; and
— 20 percent for savings or debt payment.
Fortunately, modern banking and budgeting apps make this relatively easy. Many online banking apps have features that can generate reports and track the categories you spend on. Some apps allow you to link all your bank and credit cards so you can track income and expenses across all your accounts.
I recommend a biweekly review of your budget to make sure you’re on track. If you find that you’re getting off track, adjust your daily activities to help you get back on track and reach your end-of-month goal.
6. Be strategic about debt reduction
The median debt for Canadians under 35 is $19,000, rising to $35,200 for those aged 35 to 44, according to the latest data from Statistics Canada.
Since interest rates are still high, you may find it difficult to keep up with monthly interest payments, let alone reduce your principal debt.
If you really want to get out of debt, start by prioritizing your high-interest debt. Payday loans, personal loans and credit cards typically have the highest interest rates, so you should always try to overpay your monthly payments with these to reduce your principal balance and pay them off as quickly as possible.
While you do this, also be sure to continue making the minimum monthly payments on your lower-interest debt.
If you are seriously overwhelmed and finding it difficult to keep up, it may be best to look into a debt consolidation loan. This is a special type of personal loan you can apply for designed to cover the entire balance of your debt, consolidating everything into one loan with a lower interest rate.
Not only will a debt consolidation loan simplify multiple payments into one monthly payment, but it can also improve your credit score since your credit report will show multiple credit accounts paid in full.
7. Simplify investing and saving
My last piece of advice is to simplify your investments and savings. In my experience, saving and investing is easier when you automate it. For example, you can change your online banking settings to automatically set aside 10 percent of your paycheck into an investment or savings account.
If you’re doing side hustles or receiving cash tips, try setting aside a percentage in an envelope or a safe place for a rainy day.
8. Give your actions time to get complicated
Restoring your finances will take some time. Even if you give it your all and do everything right, don’t expect to see a major change in February. Realistically, your financial situation may only improve 5 percent each month.
This is where your patience and perseverance come into play. That 5 percent, when allowed to accumulate over time, can lead to noticeable quarterly differences and can make a big difference over the course of an entire year.
If you get off track or lose motivation, go back to the notes you wrote, remind yourself of your goals, and remind yourself of the “why” behind your desire to improve your financial life.
