A fresh start for your finances

I f you're someone who likes to reflect on the past year, why not do the same with your finances? Assessing your financial health at the end of a fiscal cycle—whether in December, in January, or during your spring cleaning—can be very beneficial. By preparing a detailed financial report and making a realistic budget for the coming year, you'll be able to put your best foot forward and adopt responsible personal finance habits.

Looking back

This New Year, give yourself the gift of assessing your financial health. Not sure where to start? Here are a few helpful questions to guide you.

If you've already created a comprehensive portrait of your income and expenses or prepared a report on your finances in recent months or in the past year, examine the information with a fine-tooth comb.

• Have you forgotten any sources of income or expenses? Should certain budget items be added or removed?
• How does the information compare to your current situation? Is everything up-to-date? Has anything changed since you compiled the information?

Below are more specific questions to consider, whether you're preparing your first financial report or simply updating information.

• What is the total value of your debts? Do you have a debt repayment plan? If so, have you paid back the amounts expected?
• What is the total value of your savings? Does your current financial situation allow you to save more? What is the total value of your investments and assets? Have you met with a financial planner recently to maximize your returns?
• What is your credit score? Do you keep track of it? Have you noticed any variation in your score over time?
• If you had a budget, did you follow it? If so, what factors helped you succeed? Did you have more or less surplus income than you expected? Are you satisfied overall? If not, what prevented you from following your budget? Was it too vague or unrealistic? Were your forecasted revenues or expenses incorrect?
• If you encountered unforeseen expenses, how can you better prepare for this type of event in the future?
• Do you have any new debts that you'd like to start repaying this year? These may include the Home Buyers' Plan, a deferred or equal payment plan, a student loan, or a car loan.
• Did you have any financial goals, and if so, did you reach them? If not, what factors hindered you? Do you want to set new goals or simply adjust your current ones?

Don't worry if you don't have all the answers to these questions. At this stage, the important thing is to collect any missing information for your financial report, which you can then use to make a detailed plan.

How to prepare a financial report

If you're unfamiliar with financial reports, rest assured that making one is easier than you think. Below is a simple three-step guide.

01Identify your assets

Add up the funds in your chequing accounts, savings accounts, TFSAs, RRSPs, and VRSPs, plus any cash and other amounts you hold, including the value of your assets. Don't forget to add the value of your home, cottage, or other property.

02Combine your expenses

Assess your expenses for each budget item. Many financial institutions now have tools that allow you to view your bank account or credit card statements at a glance. They're incredibly useful when it comes to keeping track of your finances and monitoring spending habits. They can also help you identify where you spend the most and where you're more frugal.

03Calculate your debts

Add up all outstanding credit card balances, line of credit debts, and other loans, including any car loans or mortgages, if applicable. Don't forget to include interest.

Starting fresh

Once you complete your end-of-year report, you'll have a clear overview of your financial situation. With it in hand, you have everything you need to review your personal finance habits. When it comes to managing your incoming and outgoing funds, as well as your savings and investments, there's no magic formula. The secret is to plan wisely and review your plan on a regular basis. Give yourself the proper tools to make sure your coming year gets a clean bill of financial health.

Set your budget

One of the best ways to adopt—and maintain—good money management habits is to establish a budget. If you base it on your financial report, you'll be better equipped to set realistic and easy-to-achieve goals. Of course, discipline is key! When preparing your monthly budget, remember to include the following:

• Your income (e.g., net salary, investment income, benefits from private or public plans, such as family allowance payments).
• Your expenses (e.g., housing, transportation, insurance, food, clothing, activities, health care).
• The amounts allocated to the repayment of your debts.
• The amounts allocated to your savings (e.g., emergency funds, RRSPs, TFSAs).
• Any significant expenses associated with one-time events.

Deduct your expenses from your income. If the final amount is positive, you have the means to increase your savings, or invest in a fun or practical project. If the amount is negative, don't panic! Simply identify areas where you can easily cut back on spending to balance your budget. Small adjustments, like reducing non-essential expenses, can make a big difference after only a few weeks or months.

Budgets are always based on elements that can change from one moment to the next. Don't wait until the end of next year to review and update yours! A budget not only provides a clear picture of your means, but also allows you to quickly see how changes in your spending habits affect your financial situation. Ideally, you should review and adjust your budget every month to make sure you're on track to achieve your goals. Remember, a budget only works if you're able to stick to it!

Establish concrete goals that mean something to you

Budgeting isn't all about entering numbers in boxes! You also need to set specific and compelling goals to help you manage your personal finances. For example, are you saving up to buy your first property? To pursue a professional project? To plan a long trip? To pay off your debts? The possibilities are endless! Determining your reasons for saving will help keep you motivated and disciplined.

Regardless of your objectives, you need to have a plan. Once you're in control of your finances and have surplus income, it's widely recommended to start by paying off your debts. First, identify which debts have the highest monthly interest payments. Determine a fixed amount to be paid monthly, according to your surplus income. Are you saving for a large-scale project? To make sure you reach your goal on time, position your major milestones on a realistic time horizon.

Saving for the future

Saving is essential, whether it's for your retirement, personal projects, or financial security. But setting money aside can be a real challenge! An automatic savings strategy can help make it easier for you to save. It's simple: an amount is deducted directly from every paycheque (for example, if your employer offers the RRSP+ by payroll deduction) or from your bank account at the frequency of your choice via automatic bank withdrawals. You can then deposit these amounts into an RRSP or another savings vehicle. That way, they're set aside before you're tempted to spend them! Payroll deductions or automatic bank withdrawals allow you to save unconsciously, making it easier to reach your financial goals. Of course, keep in mind that you can make changes to your automatic savings as needed.

Start an emergency fund

An emergency fund is another essential savings goal. It should be a priority for anyone interested in maintaining healthy finances. An emergency fund should allow you to live comfortably for at least three months without income. Reaching this goal can be difficult, especially if you're in the red or not accustomed to saving. However, you'll be happy to have this financial cushion if the unexpected happens. To make your goal more attainable, consider opening a TFSA, which allows you to accumulate investment earningsAttention, this link will open a new tab.Attention, this link will open a new tab. tax-free—unlike traditional savings accounts. What's more, you can make withdrawalsAttention, this link will open a new tab.Attention, this link will open a new tab. at any time, tax-free.

The end of the year is often a time for reflection. It's the ideal opportunity to prepare a full financial report and adjust your budget accordingly. Since finding the best savings strategy for your financial situation can be daunting, don't hesitate to meet with a finance expert for guidance. Having control over your finances will help you start the new year on the right foot!