As we say goodbye to 2021 and welcome 2022 many people will set New Year’s resolutions. In fact, approximately 69% of Canadians make New Year’s resolutions — 32% making resolutions to improve their financial health. Unfortunately, 80% of people who make resolutions don’t continue them past mid-February. Not because they didn’t know where to start, but rather, just like getting back to the gym, their resolution seemed like too much work.
If you want 2022 to be a better year for your financial health, don’t let the following myths prevent you from making 2022 the year you get your financial fresh start.
Myth 1: Setting financial goals is out of reach for me
Anyone can set goals but sticking to them is what is out of reach for many. We suggest setting SMART financial goals to keep you on track. By setting these types of goals, you can clearly define attainable goals, set realistic actions and timelines, and measure your progress along the way.
An example of a SMART goal would be:
- Specific – Pay off your credit card bill.
- Measurable – Pay off the balance of $2,000.
- Attainable – Pay $200 per month towards the bill.
- Realistic – Skip the delivery and make more meals at home
- Time – Pay off the debt within a year
Short-term goals should be kept to a timeframe of under three months. Loftier financial long-term goals are great, too; just break them down into mini-milestones so that way you are seeing progress along the way. Don’t be afraid to change the goals as situations change in your life. For instance, if you receive a raise, perhaps the financial goal could use an adjustment.
Research has shown that you are more likely to achieve your goals if you write down your goals. In fact, statistics show you are 1.4 times more likely to reach your goals when you write them down. So grab a pen and paper or open the notes app on your phone and jot down your goals. While you’re at it, share them with a friend to help keep you accountable and on track.
Myth 2: I can set my financial goals without putting a budget in place
A budget is an important tool to help you achieve your financial goals. Putting a budget in place will help control your spending and ensure you have what you need to reach your financial goals. To develop a budget, you will need to track your spending and set limits. Monthly tracking of your income and expenses will help measure your progress in achieving your goals and sticking to the budget.
The primary outcome should be to spend less than you earn. Laying it all out on the table will also help you find problem areas. When it’s in black and white, it’s easy to see exactly where you are wasting your money.
Myth 3: Spending less is the only way I can get out of debt
Although a budget will help you recognize areas, where you may need to improve your spending habits and spend less, here, are a few things you can do to pay down your debt quicker:
- Review your monthly expenses & charges – when creating your budget and setting your goals, it is also a good time to review those regular monthly expenses and ask yourself if any can be reduced or eliminated. Perhaps you can do without a music or television subscription? You could also talk to your bank, insurance company or mobility provider to see if you can negotiate lower fees or change to a more affordable monthly plan.
- Be strategic when paying off debt –many believe that you should focus on your debts with the smallest balance first, while others suggest a focus on paying off the highest interest amount. Paying debts with the smallest balances first will allow you to see results right away, and that can keep you motivated —especially if your debt feels overwhelming. On the other hand, if you tend to be more practical, your best approach may be putting any extra cash toward the debt with the highest interest rate. This approach can take years off paying those cards or loans with a large balance, and less of your hard-earned dollars will be going to interest.
- Try to find additional income that you can put towards your debt – once you have cut wasteful spending, finding an additional income source could help you tackle debt more aggressively. Ensure that the second income is used solely for its intended purpose – paying down your debt quickly. Don’t co-mingle that income with your primary source of income, or you will be more likely just to spend it. Don’t be tempted to use the extra income to pay for the inconvenience of having a second job or source of income, either. Every dollar earned should be paid towards your debt, not paying for a meal out because you are too tired now that you have a second job. It’s also important to ensure you are being taxed appropriately as well. You don’t need an unexpected tax bill due to the increase in income. If necessary, have extra tax taken off one source of income. Once you have paid off your debts, you may want to consider shifting your focus to savings if it isn’t in the plan already.
If you are still having trouble achieving your financial goals after trying out the above suggestions, you should seek the advice of a professional. Licensed Insolvency Trustees (LITs) are the only debt professionals federally regulated and qualified to offer solutions such as a Consumer Proposal or bankruptcy. And when you choose an LIT, you can be confident that you are dealing with someone who has proven that they have the knowledge, experience and skills to help you make an informed decision about your finances.