Monday, January 4, 2021
The Top 10 Money Goals for 2021
Welcome to 2021. I would like to say that last year was the weirdest, wildest, most dumpster fire-ish year ever but I somehow think that would be jinxing us all for this year. Instead, I will say that 2020 has taught me a lot of lessons, one of which is to expect the unexpected. It also taught us that we should take nothing for granted including something as simple as enjoying a night out with friends or having toilet paper. While it is hard to make left from right these days, there is also a sense of clarity that the Covid-19 Pandemic has given us. We now see how important simply being employed is. We now see the importance of the nurses, long-term care workers, grocery clerks, delivery drivers, teachers, early childhood educators, and the ever so valuable liquor store attendant. What we also should have seen this year is the importance of having our financial houses in order. Being broke was never fun but being broke during a pandemic took on new meaning. Small business owners and their workers are getting crushed, and that breaks my heart. The sad truth is that even before Covid hit, many in our society were already hanging on by a thread financially. An overwhelming “good riddance 2020” was said on New Year’s Eve last week, but before we move on let us take stock. I want us all to rock 2021 and make it the best year ever. I give you the Top 10 Money Goals for 2021 so this year we will fair better than the past year. Let’s get started.
1) Make More Money
They say money cannot buy happiness. How about you give me all your money and I will let you know how much happier I am. While money is not the root of happiness, it does make life a lot easier. For that reason, among others, it should be a constant goal for you to make more money. I know this year has been tough and many are out of work. I also know that the government does not give much in the way of money to those unemployed due to Covid. Logically, any other job will pay more than that. If you are in a role that is diminished by Covid and potentially can be for many months or years to come, I would highly recommend reconsidering your employment. Can you afford to be at a reduced wage for a lengthy period? When we are “back to normal,” will your industry bounce back? Long story short, EVERYONE needs to try to make more money. EVERYONE needs to strive for secure, profitable employment. If Covid has taught us anything, it is that all paychecks are essential. Stop hating the rich and start trying to become wealthy.
2) Implement a Budget
Only 41% of people use a budget on a regular basis. About 50% of people are less than $500 from a financial disaster. I wonder if these two people overlap. Hmmm??? My main man Dave Ramsey once said, “A budget is telling your money where to go, instead of wondering where it went.” That is the essence of why a budget is so important. It can be as simple as a pencil and paper or as sophisticated as a budget app that tracks every purchase. I even have one client using a spreadsheet to track his money down TO THE PENNY. However you do it, just do it. Those that use a monthly budget on average are more wealthy, more secure, and even more important, more confident with their finances. It shows you exactly where everything is going and for most people that can be scary at first. Get over the initial shock and narrow in on what you are spending your money on every month. It is this clarity that will curb bad habits and enhance the good ones.
3) Build Your Money Buckets
I believe everyone should have their money segmented for different purposes. I call these “Money Buckets,” and what that means is that you have money in several different places. Here is my Money Bucket System:
Bucket 1: General Checking Account
In this bucket, you will have your day-to-day spending come out. It will also be where all your income goes in. Your goal with this account will be to have MORE money coming IN every month and LESS money going OUT every month. This is called: POSITIVE monthly cash flow. This account should have a minimum balance of at least 1 month’s bills, between $2,000 and $5,000, or more. This minimum balance helps you avoid going into overdraft should a random bill come up.
Bucket 2: General Savings Account
This is where you store your 3-6-month Emergency Fund. This account WILL NOT generate much interest growth for you, but that does not matter. It is accessible should an emergency pop up. Make sure you choose an account style that does not penalize you for transfers to your checking account. I learned that $20 lesson the hard way. A simple savings account with your bank will do just fine.
Bucket 3: Your Investment Accounts
This is money you ARE NOT touching, at least any time soon, unless you will be put out on the streets. Everyone should have a Tax-Free Savings Account, known as a TFSA. (This is your Roth IRA in America). While this account was developed as a savings account, it is really an INVESTMENT account. If you have bucket 2 fully stocked, then this bucket can be left for long-term growth. DO NOT use this as an emergency fund. I repeat, DO NOT use this as an emergency fund. Some jokers at the bank probably told you this was a good idea. You are missing the potential of this account if you store your money here in cash or simple interest. Other Bucket 3 vehicles include Registered Retirement Savings Plans, Non-Registered Investments, and other long-term investments.
If you implement my bucket system and fully stock each bucket, no emergency will crush you, no bill will surprise you, and no retirement goal is out of reach.
4) Create and/or Continue Covid Cutbacks
Let’s be real here. It’s been about 9 months of a lockdown or semi-lockdown conditions. You should by now have a handle on where you blow all your money. If the UPS driver knows how you take your morning coffee, there is an issue. If the Uber Eats driver knows you like extra pickles on your Big Mac, also an issue. I am one for stimulating the economy, but not at the expense of my financial stability. During these times you should be saving money on non-essential things like dining out. If you are only traveling out for essentials, gone are the days of impulse buys at the store as well. If your gym is closed, you have learned to live without that as well. There are many things in our everyday life that we have been forced to do without, some of which are for the better. I have driven a third of the amount I drove last year, and I am not hating it. I want everyone to be mindful of unnecessary spending that Covid squashed when we get back to normal. Although this was a burden for most, it also was a wake-up call.
5) Pay Down Debts
Stimulus money to debt-free people went a long way. Stimulus money to people with debt barely made a scratch. 2021 should be the year of debt-freedom. A whopping 170% of our take-home money is tied up in consumer debt here in Canada. That is completely unacceptable. It absolutely crushes our monthly cash flow. Worse off, it adds stress to our everyday lives, especially in tough times such as, ummm… A PANDEMIC. Utilizing the Debt-Snowball Method perfected by Dave Ramsey is an amazing way to get started. That method forces you to pay down the smallest debt first and then move your way up to the larger ones. This helps build momentum and get you in the right mindset for debt repayment. Gazelle Intensity! Debt only makes the banks rich and I want us all to make a vow to not give those greedy jerks any more of our hard-earned money.
6) Actually Invest Your Money
What does this mean? Most people do not properly invest. Most people simply put money somewhere and assume something good will happen. I want everyone to take control of their investments and that means several things. Firstly, make sure you are actually invested in something. This is not a “High-Interest Savings Account,” or a stupid promotional “Tax-Free Savings Account,” with your local bank. It means you are invested in growth based funds that are well-diversified across many regions and sectors. You want to be across many regions because you don’t want to be at the whim of one country which at any given moment can have economic turmoil. Simply put, you don’t want periodic political strife to ruin your investment performance. You want to be across many sectors because you don’t want a global downturn in one area, think oil and energy, to ruin your investment performance. I properly diversify my clients for the simple fact that I cannot predict which region or sector will win in any given year. The truth is no one can. Spreading out the risk ensures that even in bad years you will weather the storm. Lastly, and most importantly, you need to invest regularly, and this is not up for debate. The simple law of Dollar-Cost Averaging allows you to grow even when markets are down. When markets tank, you buy more units of your investment. That means when they go back up, you have more of your investment than before. This will springboard your growth and for those of you who kept investing from March to August of this year, you saw what it can do. Follow these simple rules and you will be properly invested and at that point, the sky is the limit on your potential.
7) Protect Your Life… Cheaply
Along with the Tax-Free Savings Account, personally owned life insurance is a must-have. The reasons are simple. Firstly, a responsible person does not leave behind a financial burden on their loved ones. While you might not think this is important, your family members do. Lastly, and more importantly, in order for you to be wealthy, you will need to put money into things that do not give you immediate gratification. This will include saving and investing for your retirement, which could be as much as 40 years down the road. If you cannot, or will not, live a life where certain money does not exist to you, then you will NEVER be wealthy. Blame society, or the government, or your parents all you want. YOU are responsible for your future and YOU should be responsible for your responsibilities, including the burden of your death. That being said, I want my clients to get their coverage with as little monthly cost as possible. What this almost always means is getting cheap, easy to obtain, personally owned term life insurance. This coverage will pay out a tax-free lump sum when you die, to your beneficiaries. You can get it literally for pennies, so there is no excuse. When you are young, you can lock in the cheap price to carry you through your adulthood and it will always be there when it is needed, which we hope is not anytime soon. Long story short, be an adult, get life insurance. Today!
8) Protect Your Paycheck… Cheaply
This is an area most people neglect. As mentioned earlier, having a job period has come to the forefront during the pandemic. While you may not have Covid, and hopefully will never get it, getting hurt or sick is a real threat to your livelihood. The number one reason people do not reach their retirement goals is because of health reasons. With medical advances, we are living through the most serious conditions these days. Sadly, the financial effect is all too real. Therefore you NEED some form of income protection. This comes in the form of insurance, namely disability and critical illness protection. Many workplaces offer some form of coverage through their health plan, but unfortunately, many others do not. Also, your workplace coverage may not protect you as much as you need. For instance, most workplace plans only cover 50-70% of your lost income. Could you survive on half of your paycheck? I didn’t think so. This is where personally owned coverage comes into play and all that is needed is a simple review of your workplace plan to get started. Like life insurance, my goal is to get my clients as much coverage as possible, for as little cost as possible. This should be your goal too.
9) Review Your Mortgage
The government has an interesting way to stimulate the economy. They lower interest rates at central banks so that people will borrow which in turn encourages investment in business during troubled times. What this also does is reduce mortgage rates to rock bottom levels. Recently I have been redoing mortgages for my clients to reduce their interest rate and saves them thousands of dollars as well as many years off their mortgage. I have done this for people even only two years into their five-year term. It is important to review your mortgage annually so you can see if there are savings to be made. A simple switch can help you pay down your mortgage sooner and bring you closer to that amazing place I call “Net-Worth Millionaire” status. If you have a mortgage rate of 2% or more, schedule a review now. The math isn’t that difficult, and a skilled broker can help you determine if a new mortgage is right for you. Oh yes, a skilled broker will also help you determine if you are wasting money on useless mortgage insurance as well.
10) Put a Will and Power of Attorney in Place
While you may not think you need a will, believe me, you need a will. A will directs your loved ones on what to do after you die. It helps settle disputes, bring order, and divides assets in your estate. It also tells your loved ones who will take care of minor children should you die. Coupled with life insurance, it is the game plan for your wishes to be followed when you are gone. A Power of Attorney is equally important. It is the document that allows someone to act on your behalf should you become unable to manage your day-to-day life. You must, must, MUST set this up as soon as possible. If you are incapacitated, you will not be able by law to do it then as it can be challenged. This is estate planning 101 and even if you are young and have very little wealth to your name, a will and POA are essential. Simply naming beneficiaries on your assets, especially with the bank, is not enough. They WILL go to probate and end up costing your loved one’s time and money. I have seen estates not be settled even as much as 3 years later! This is absolutely unacceptable. A lawyer is not needed to set up a will unless you have complex estate issues that need to be handled. Get working on yours today.
There you have it, my Top 10 Money Goals of 2021. This past year may have been a nightmare, but we can put the steps in place to make 2021 the best money year yet. Believe in yourself and get rolling with your personal money plan now.
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