This year, considering Canadians are in record amounts of debt, saving more and spending less are likely to be among the top promises made for 2013. As we look to start fresh in the new year, however, let’s look at the financial lessons imparted by 2012.
Cheap Money is Dangerous
Never in history has it been this cheap to borrow money. Since January 2009, the Bank of Canada’s Overnight Lending Rate has been below one per cent. This is the longest borrowing costs have been this low – and they’ll inevitably rise (experts say third quarter of next year will see an increase). Take advantage of this opportunity and assess your own debt situation while it’s still cheap. The best thing about borrowing money at such a low cost is you can pay it back quickly – but beware rising interest rates.
Nothing Lasts Forever
We learned last month that Bank of Canada Governor Mark Carney would be leaving his position to take the same job at the Bank of England. Carney, who is credited with keeping Canada’s head above water during the economic crisis in 2008, has served as the country’s security blanket for many years. His decisions and policies have been seen as the reason Canada survived the economic crisis. I wrote about Carney’s departure a few weeks ago and believe Canada will cope well after he leaves. Carney’s departure teaches investors not to rely on any one constant with the economy. We have to make decisions that are for the long term and can withstand all surprises.
The U.S. Matters – Maybe More Than Ever!
Whether it’s the Fiscal Cliff or Barack Obama’s re-election, the outcome matters to Canada’s economy. The U.S. is Canada biggest trading partner and changes in its economy affect Canadian business. When investing this year, keep this in mind and consider carefully how Canada’s economy is doing and how its relationship with the U.S. is working.
Government Pensions Are Unreliable
Up until this year it would be impossible to think that anything could change the country’s CPP. But this year’s budget revealed pension reform is coming, albeit not for many decades. What this change is telling all Canadians is we cannot rely on the CPP to help during retirement. It’s an important reminder to save more for your golden years, enough that if you did receive CPP it would be just a bonus to the retirement
What You Can Do: Easy Financial Resolutions
Here are some simple resolutions you can implement this year to improve your financial standing.
Adopt a weekly cash-free day: Designate a day to stick close to home, spend no money, eat of your fridge and take stock of all you’ve spent and done that week.
Save at least five per cent more: Whatever you are doing right now when it comes to saving, boost it by five per cent. If you are saving nothing, then this is a good small step towards getting financially ahead. Once you’re comfortable saving this small amount, boost it again until you are saving your maximum amount without hurting your lifestyle.
Give to charity: Even if its only five dollars a month, find a charity you believe in and start donating. Make sure you feel how important each of your donations are when you see the money withdrawn from you account. Giving it away makes you appreciate your own money.
Find a saving buddy: Look for someone in a similar financial situation as you and someone you see socially often (this will make it easier to keep track of each other). Make each other your phone a friend when you feel the impulse to shop or spend money. By calling and talking it out you can make sure you are making the best decision about your money.
Leave the car at home once a week: Walking, cycling or taking transit will save you money on fuel and possibly parking, and can promote good health at the same time.
Here’s wishing you all the best for getting on the right financial track in 2013! Remember, saving money is just like losing weight; it take small changes in your everyday life to see big differences overall.
Happy holidays, everyone!