I don’t do New Year’s Resolutions.
Stay with me here.
Not because I don’t like goals, I really, really like goals. A LOT. But, rather because I don’t love the idea of looking for betterment only once a year. I’m more of an ongoing improvement and continuous growth kind of gal. Trust me, this isn’t as exhausting as it sounds. Instead, I focus on smaller, micro goals that are actually achievable, and double win, you feel like you actually make progress, because you do.
So, what I mean when I say I don’t do New Year’s Resolutions, is that I don’t make huge, colossal goals every year and expect to achieve them. The same is true for my finances. I do however, value the opportunity to reflect back on the year, set new intentions and work towards what I want to achieve in the coming year.
I’ve always kept track of my budget, set an annual yearly financial goal and generally been pretty aware of my finances, but it was only in the last two years, that we really started to focus more intentionally, seeking out the advice of a financial coach and began working towards larger and more specific financial targets.
We save for things like our “slowmergency fund” (for all those unforeseen surprises), “nest” (our someday, hopefully house and downpayment fund), “an adventure/travel fund” and of course, general expenses and others savings, and we do this through automatic deposits into each of those separate accounts. No guess work. No thinking. No stressing. And every month we save and spend within our means. Best of all, we watch our money grow.
So, if you’re looking to kick-start, revamp or ramp up your savings (and especially if you’re focused on a downpayment fund), here are a few things (8 easy steps, to be exact!) to consider when setting your 2018 Financial Targets:
Step 0… before you begin, make sure you’ve set aside some time to actually think about what you want. This may sounds like obnoxiously silly and like overly obvious advice, but funnily enough, so many people start somewhere in the middle of the plan, instead of the beginning and haven’t really even thought about what they actually want, what they can safely afford and how to map out the steps to reach their goal. If it works for you to create a workbook schedule, instead of thinking from the beginning, do that instead.
The point is, think about what it is you actually want. If you were to write financial tenets, what would they be? Think about them, write them down, internalize them and allow them to guide and inspire your upcoming financial plans and goals.
Now, you’re ready to make a plan!
Step 1: start/stick to your budget
- For example, a 20% downpayment, of an $800,000 home, is $160,000. So if you want to purchase a home in three year’s time, you will need to save just over $4,444/month
- If you can only save a lower amount per month, you will likely need to push your homeownership goals to five years out. It may seem like a long time to wait, but it’s much better than having unrealistic monthly goals and giving up altogether
- Either way, consider what is realistic and build your plan around that timeframe.
Step 2: pay off your debts first – outline a debt repayment plan (and set up automatic deposits, see step 3 below).
Step 3: open savings account(s) and begin automatic deposits, both to your debt repayment and your savings accounts (*couch potato tip and something future you will thank you for: set these for the same schedule as when you get paid)
- You can also use a Tax Free Savings Account (TFSA) for your downpayment: in this type of account, your money can grow tax free (meaning you won’t have to pay income tax on the money you earn as it grows in this account).
Step 4: check your interest rates on every bill and account to see if you can do better. This might seem like a pesky task, but it could save you some cash. If you’re paying a really high interest rate on one of your bills and it’s possible to adjust it, in the long run, you might be doing yourself a favour.
Step 5: check your credit – your ability to borrow and the rate you pay are closely dependent on your credit score (you can learn more by visiting our post on credit scores here). This is an important step, as it impacts whether a lender will consider lending to you and what amount you will qualify for.
Step 6: calculate the mortgage amount you would qualify for (play around with an online calculator, or the Home Affordability Calculator on our website, and see what’s realistic). Again, another important step, as this will allow you to plan your monthly savings and eventually reach the total amount you want to save. If you adjust your automatic deposits to match your monthly savings (or bi-weekly, whatever your payment schedule is), you will know exactly how long it will take to save a certain downpayment amount. Will you really have your full amount saved up in three years or is it going to take five?
Step 7: research first-time home buyer assistance programs in your region. Depending on where you live, there are incentive programs that can help you as a first-time home buyer. For example, if you live in Ontario, you can withdraw up to $25,000 from your RRSP (it must be paid back within 15 years) tax free if you qualify. You can also apply for certain deductions, such as a GST/HST rebate or a tax credit. Find out what’s available to you in your region and what you qualify for and make them work in your favour!
Step 8: (phew, you made it!): if you’re able and willing, consider investing. Sometimes a little goes a long way. That said, consider what kind of investor you are (conservative, a couch potato or possibly a high risk investor?). If need be, speak to a professional about your options.
- Never put your entire downpayment into stocks – if the market takes a turn, you don’t want to lose it all. 25% of your total amount is a good place to start.
While this list certainly isn’t exhaustive, we do hope it helps you begin making a plan to either start saving or amp up your 2018 (downpayment) savings and also leaves you feeling excited about the possibilities for your money over the course of this New Year.
Whatever you decide and as we always say, make sure your plan works for you, is customized, easy to maintain and achievable. Saving requires patience and a little hard work. Plant your roots today and you’ll be sitting under the shade of your very own tree before you know it. Get ready to watch your money grow!
Here’s to a great year of saving!