So, full disclosure: We're two sleeps away from Christmas and I know already that I've overspent again this year. Despite the fact that my list was short, I wasn't working with a budget so I didn't factor in all the holiday extras that happen every December: holiday parties and events, end-of-year work travel, charitable giving, larger grocery bills and other unplanned shopping sprees. Considering the fact that I work in the financial industry, I really should know better.
But we all do this every holiday season, don't we? The pressure builds as everyone rushes around buying too much stuff that we know we don't really need before the Big Day. Then our festive bubble bursts right around January 5 when the first post-holiday credit card bills are sent out. And then just as suddenly, it's RSP season followed by spring and Tax season. I count myself among the many who forget to exhale as the money-related anxiety rises to a fever pitch. It's enough to give us all a massive ulcer.
Ok, let's all keep breathing because it's possible to overcome these bad habits in 2015. Since I'm not a licensed financial advisor, here's what my Wealth Management colleagues suggest: you can realign your financial situation with a five-step holistic or 360 degree approach that takes into account every part of your life.
Step 1: Take stock of your financial situation
As mentioned above, we all turn into absentminded spending zombies each December as if we've been hypnotized by the twinkling lights and tinsel. And then we spend the rest of the year trying to pay off these expenses before the cycle begins again. One way to avoid this is to adopt the magic phrase that's been absent from our lives for years: I can't afford this right now.
Next, take stock of your financial situation right now: look at what you have in your accounts, what debts do you owe and what's coming up in terms of family and social obligations that will require you to spend some money. With this information, create a simple monthly budget. Use line items like: rent/mortgage, loans, groceries, entertainment, utilities, debt, future savings and emergency savings. If you feel like there isn't enough wiggle room for the savings items, track your spending for a month to see where your money is going. This way you can find some extra by identifying those areas that can be cut back or eliminated. Now that your simple budget is done, stick to it. The urge to splurge will nag at you, but it's better to say no instead of chasing that elusive dream of the 'good life. Use the money you'll end up saving to pay down your debt or to top up your retirement savings.
Step 2: Invest in yourself with a health plan
A health plan takes into consideration your current health and your family medical history; the latter definitely has a direct effect on the former. In other words, your parents' good or bad habits will also influence you. Knowing your health history can help you adopt better habits now so you'll live better and hopefully avoid increased medical expenses later.
Step 3: Create a fitness and mobility plan
While often confused with the health plan, this one considers exercise and diet. In fact, you can be healthy but not mobile as neither is mutually exclusive. To start your fitness and mobility plan, think about how you want to be next year, in 5 years, in 20 years and into retirement. Then start taking the steps towards living more actively and cleanly by exercising, eating well and adopting other preventative habits will help you live longer. And the best part: these good habits don't have to hurt your new budget. A walk or meditating to one of your favourite CDs is priceless.
Step 4: Your lifestyle plan cultivates your mind
Similar to the fitness plan, which focuses on your physical, the lifestyle plan strengthens your mind. The object is to cultivate personal interests, hobbies, interests and other activities that get you out in society. Maybe you love coaching sports to kids or leading pottery classes to adults, these kinds of activities keep your mind sharp and give you purpose. When you feel purposeful, you won't need to fill in the gap with a fancy new toy, a pair of new shoes etc. Once again, it doesn't have to cost a lot! Who knows, you might even be lucky enough to earn a pay cheque. Another great residual is that you can carry these hobbies into your retirement years, which will help live longer too.
Step 5: Tap into your community
Your community plan identifies who is part of your community -- in other words, your support system or those people who you may have to help in the future. They can be your parents, in-laws, step-parents, siblings and siblings-in-laws, other parts of your extended family, your kids, close friends and neighbours. The idea is to have a frank discussion to create an agreement or a needs-analysis with them. This could include a detailed roles and responsibilities agreement with your parents, a living will for yourself, or creating a power of attorney with a close friend or neighbor. If left to chance, the lack of these agreements could have a negative impact on your other plans.
When all five of these plans are in place, you will have a robust, over-arching financial plan. The aim is to be in better control of your cash flow now so that you can get into the habit of living within your means, while saving for retirement and a rainy day.
Good luck, happy holidays and all the best for 2015.
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