A New Year will dawn in just over 3 more days. For me and many others who are close to me, the fresh start that a new year brings can’t come soon enough. Every year has its trials and triumphs but it seems that 2016 has had more than its fair share of the former and not enough of the latter. So I thought it was time to write about some strategic moves we can all make with our money in the coming year to make 2017 better than 2016 and set us up for many more good years in come.
With a new president in the United States we will likely be hearing a lot about the first 100 days of the new administration. Like a game of chess, the first few opening moves of a new administration are said to set the tone for the entire four year term. I like the idea of the first 100 days. It is long enough to measure and short enough not to drag on and on. The following are all moves you can make in the first 100 days of 2017 and set the tone for the rest of the year.
1 – Pay off consumer debt
Consumer debt (credit cards, personal loans, lines of credit etc) usually comes with a higher interest rate than your mortgage so that’s the best place to start. As of the last full accounting in 2015 Canadians were carrying an average of $21,164 in non-mortgage debt.
I’ve written at length in the past about various debt repayment strategies like the Debt Snowball and Debt Avalanche. Whether you need a series of small early victories or just want to get rid of your highest interest debt first doesn’t really matter. The key to both strategies is that once you have paid something off you roll the amount you’ve been paying over to the next one on the list and pick up momentum as you go, like rolling a ball down a hill.
Think of your debt repayment as an investment. Every dollar you pay toward a debt with a 19% interest rate is like earning that same 19% on your investments. At the end of the day it’s all about your net worth anyway and by reducing that debt you are increasing your net worth faster than you would be if you put that money toward an investment, even if you achieve an almost unheard of 12-15% on your money.
Your biggest debt is likely your mortgage. The average mortgage in Canada is about $175,000. If your mortgage allows for it, consider putting a lump sum directly toward the principle. This could save you thousands in interest over the course of the term.
Alternatively, if you have at least 20% equity in your home you might also consider renegotiating or transferring your mortgage to a different financial institution and rolling some of your higher interest debt into the principle. Many financial institutions offer these kinds of mortgage consolidations that, even when you consider penalties to get out of your existing mortgages could save you thousands per year.
3 – Save for retirement
Money inside a Registered Retirement Savings Plan (RRSP) can grow more quickly than non-registered money because you don’t have to pay taxes on any growth until you make withdrawals. The theory is that when you do finally make those withdrawals you will be in a lower tax bracket than you were when you made the deposits so you will always pay less tax than if you hadn’t registered the money in the first place. Not to mention the fact that you will get a tax deduction based in the amount of your RRSP contribution.
This is an important move for not just the first 100 days of the year but if you make the contribution within the first 60 days of the year (prior to March 1) you can report it on your 2016 tax return.
4 – Save for a short-term goal
There are lots of things we can consider as a short-term goal; saving for a down payment on a house, a new car, vacation or building up an emergency fund. Open a Tax-Free Savings Account (TFSA) for these types of things. All investment growth in a TFSA is tax-free and can be withdrawn at any time without incurring any taxes. And the best feature of these accounts is that you can withdraw money one year and put it back the next year without losing any contribution room.
As of January 1 every Canadian over 18 will receive an additional $5,500 of contribution room, bringing the total available room depending on your age to $52,000.
5 – Save for education
If you have children that are planning on going on to post-secondary education there is no better investment vehicle than the Registered Education Savings Plan (RESP). It is essentially guaranteed free money. Depending on your income level the government will add up to 20% to your investment. Consider an average investment earning 5% on its own plus the 20% in government grants and there is no other investment on the planet where you could reasonably expect a 25% annual return. Best of all the money is taxed at the student’s income rate when it is withdrawn, which should be next to nothing.
With these early moves you can set the tone for a successful 2017. For more information on how to implement these and other strategies feel free to contact me any time.
Mr. Lauren C. Sheil is a serial entrepreneur who has been in business for over 20 years. He is currently a Financial Security Advisor with one of Canada’s premier financial planning organizations. He holds dual licenses from the Financial Services Commission of Ontario (FSCO) for Life, Disability and Critical Illnesses Insurance and the Mutual Fund Dealers Association of Canada (MFDA) for personal investments. He is passionate about helping people to live life to the fullest while Eliminating Debt, Building Wealth and Leaving a Legacy.
He can be reached at email@example.com or by calling 613-295-4141.