Top 2008 Financial Resolutions

Don’t you just love a fresh new year? January 1st arrives with renewed optimism to accomplish all those goals you didn’t find time or energy for last year. Lose those last 10 pounds? You bet! Get a raise? Oh, boy! Corner office, here I come!

Of course, the problem with January 1st is that it is followed by January 2nd, then January 3rd, etc. Reality sets in, hope fades and we are all back to the same life habits we thought we left behind with the old year. What happened?

Making New Years resolutions inevitably means breaking, or at least bending, old habits. The further you try to deviate from what is normal and customary, the harder it is to establish a new pattern of bahaviour. However, all is not lost. I can’t help you with the diet, but I can offer you a few financial resolutions that will ease your mind and guide you towards a more comfortable financial year in 2008.

- Decide upon a small number of reasonable financial goals and put them in writing. You may decide to finally pay off a low balance car loan or put an extra $5,000 against your mortgage in 2008. Whatever you choose, putting your goals in writing increases the likelihood that you will fulfill them.

- Contact your financial institution and commit to making automatic monthly contributions towards a savings plan, no matter how small. Getting the money out of your chequing account equates to getting it out of your mind. The amount in your savings account will grow quickly.

- Resolve to read more and educate yourself on financial issues and products, but remember, once the news is printed, it is yesterday’s news. Don’t make spur of the moment decisions without first consulting your financial planner or financial advisor.

- Gather together and organize all your important financial papers. Buy yourself one of those accordion files and label various sections for your financial statements, your Will, your insurance papers and your pension plan information. While you’re at it, review each document for any beneficiary designations to make sure they are up to date and reflect your wishes.

- Take action to finally break the habit of scrounging together a last minute RRSP contribution by setting up automatic monthly contributions. Arrange it by payroll deduction, if possible. Ask your payroll office to reduce your withholding tax on the amount going directly towards your RRSP. This means you won’t get a huge refund next year on your RRSP contributions. So what? It also means you haven’t made an interest free loan to the Government for a whole year. Congratulations! Good planning.

- Contact your financial planner or financial advisor and make one or more appointments scattered through-out the year to discuss the following:

1. Portfolio diversification. Early in the New Year is an excellent time to review and rebalance your portfolio back to previously agreed upon asset weightings. By all means, give yourself some flexibility to deviate perhaps 5% over or under your target figures. But any more than that and you may as well not have targets at all. Financial discipline is a good thing.

2. Tax efficiency. Are you taking advantage of every opportunity to minimize taxes on your portfolio? Does your RRSP contain the bulk of any interest bearing investments, while your non-registered portfolio holds Canadian dividend equities and a mix of U.S. and International equities? Remember, however, that being tax efficient is not a solitary goal of your portfolio, it is one of many. Be open and straightforward with your financial planner or advisor about your personal tax situation and they will help to construct a portfolio that is best suited to your needs.

3. Fees. Are you getting good value for your costs? Are there products available that will provide you with a satisfactory return at an acceptable level of volatility with minimal costs? Ask how your financial planner or advisor is compensated and understand the differences between fee-for-service and commission-based planning. Above all else, remember that the higher your total out-of-pocket costs, the greater the negative impact to your portfolio return.

- Keep the above commitments!

Once you have fulfilled these resolutions, you can turn your attention back to that diet you always intended to start. However, whether you succeed in losing those last 10 pounds or not, you can sleep comfortably knowing your financial house is in order. Happy New Year everyone!