With big mortgage payments and even bigger debt, Stephen Coulter describes his financial standing as “slightly precarious”. But the Toronto graphic designer is hopeful that 2013 will be the year he and his wife get their financial house in order.
“I feel moderately optimistic about my financial future,” says Coulter, who has some RRSPs and savings. “I just began a new full-time job after doing freelance graphic design for about six months. I am now working for a solid, nation-wide organization with very generous benefits and pension options, something I have never had before.
“I also feel that since I’m now receiving a regular paycheque, working on paying down my debt will be a little easier,” he adds. “I can now formulate a more solid strategy with my wife to work on a payment plan to hopefully be debt free--with the exception of the mortgage--in 2013.”
Whether you’re in university, packing school lunches for your own kids, or not far off from retirement, there are ways for people at all life stages to make the year ahead a financially healthy one.
“It’s never too late to make a plan,” says Jeffrey Schwartz, executive director of Consolidated Credit Counseling Services of Canada.
To eliminate or reduce debt in the New Year, Schwartz offers these tips:
- Stick to cash. When your last bill or coin leaves your wallet, stop shopping.
- Use credit wisely: If you must use credit, use those cards or accounts with the lowest interest rates only.
- Plan ahead: Before you use credit make sure you have the means to pay it off. If you only make the minimum payments on your debts, you could be dealing with them for years.
"Pay more than the minimum, even if it's by $5 or $10," Schwartz says.
What else will 2013 bring?
- Changes to Tax-Free Savings Account (TFSA) contributions
As of January 1, 2013, Canadian adults can contribute up to $5,500 annually to a TFSA, up from $5,000. This increase reflects indexation to inflation.
Why is it a good idea to put as much money as possible in this type of account? Because investment income earned in a TFSA is tax-free, as are withdrawals, and unused contribution space is carried forward and accumulates in future years.
- Higher interest rates likely
“We believe interest rates are going to go up, but we don’t believe they are going to go up quickly in 2013,” says financial advisor and portfolio manager Brett Simpson, chair of Rogers Financial Group.
With that in mind, it’s worth considering locking in on a fixed-rate mortgage rather than having a variable rate.
- Housing market to cool
“Prices are totally overinflated in Canada and [the market is] due for a correction,” Simpson says. “We’ve seen it…starting in Vancouver. Calgary and Edmonton are next.”
In other words, don’t count on your home alone as your nest egg or be deluded about just how much cash you’ll have in your pocket when--or if--you sell.
- Retirement planning still hot
Financial advisors appreciate the here and now, but they take the long view with respect to people’s financial picture. Being prepared for those so-called golden years is crucial.
"Writing a detailed retirement cash flow in today's dollars can help you have a realistic income goal for your retirement," says Richmond Hill, Ontario, certified financial planner Tina Tehranchian. "Time is on your side when it comes to saving for retirement. A young couple in their mid-30s needs to save less than a third of what a couple in their mid-50s would have to save to achieve the same results in retirement.”