A new year provides the perfect opportunity to mentally give yourself a clean slate and get a handle on your finances. Are you planning on saving more this year? Investing? Paying off debt? No matter your resolution, you first need to gain a clear understanding of where you stand financially.
And in order to do so, here are a few things you should know so you can best leverage your hard-earned dollars.
Your credit score
If you don’t know your credit score, you’re not alone. This is a number that many Canadians are still in the dark about, but in reality, your credit score should be common knowledge. A strong score is the gateway to better interest rates, credit approvals, and mortgage approvals.
Simply knowing the magic number might not seem useful, but it can help you figure out where you stand financially and what you need to do to improve. Because this number changes regularly based on what you owe, it’s prudent to check it regularly – at least on an annual basis. Agencies like Equifax and TransUnion offer this information through the mail for free or online for a small fee.
Your RRSP and TFSA opportunities
Registered accounts offer excellent opportunities to shelter investments from taxes, but in order to utilize them to their full potential, you need to know your limits. For 2017, the most you can contribute to a Registered Retirement Savings Plan (RRSP) is 18 per cent of your income up to $26,010. Pay attention to your notice of assessment to find out how much room you have to contribute for the year.
The Tax-Free Savings Account (TFSA) is also one of the best vehicles for Canadians to save money, as capital gains are collected tax-free. If you already have one, the contribution limit for the year is $5,500. However, depending on how much you’ve contributed to your TFSA in past years, you may have room to deposit more up to a total account contribution sum of $52,000. If you’ve never contributed to a TFSA, you can also contribute up to $52,000 this year.
Both your RRSP and TFSA limits can be found online by logging onto the CRA website. Or if you’re still confused on how investment account limits work, it’s probably best to speak to a financial advisor at your bank. You could be missing out on potential contribution room and thus, more savings.
If you have contribution room this year and aren’t sure where to park your money, see our best RRSP GICs for suggestions.
Your investment performance
Do you know how well your investments have performed over the past five years? Or even last year? If not, you may be missing out on valuable opportunities to rebalance your portfolio and set new goals. Regulators are now required to provide new reports on fund performance and fees, so be sure to open your statements and gain an understanding of how well your investments have performed. Once again, if you’re not too sure on how to decipher your statement, a trip to your financial advisor may be in order.
Your total debt
Debt can be stressful; taking the “out of sight, out of mind” approach and avoiding it may sometimes sound tempting. But obviously, the longer you put it off, the more it will hurt you financially. If you are not sure how much debt you hold across your accounts, make this year the year you understand what you owe and take the necessary steps to start decreasing your debt load.
Ordering a credit report along with your score will give you valuable insight into what you owe. Once you have a clear understanding of your debt, create a budget and commit to cutting costs and allocating a sizable amount to your debt in 2017. Budgeting apps like Mint or PocketGuard can also help consolidate your accounts and give you a clear picture of what you have (your assets) versus what you owe (your liabilities).
Take control of your financial success
If someone else knows more about your finances than you do, you’re not off on the right foot. There are many resources and tools you can use to become financially literate and ensure financial success in 2017.
Start doing your research; speak to a financial advisor; learn about more savings and investment opportunities; order a credit report; and download a budgeting app to crunch the numbers. Once you have an understanding of where you fall on the financial spectrum, you can create a plan that lays out the right steps to get you to your financial goals this year.