June 23, 2021
It’s that time of year. Summer’s in full swing and the first half of the year is behind us. So, how’s your financial health? While a financial checkup probably likely isn’t the first thing on your mind once the warm weather hits
It’s that time of year. Summer’s in full swing and the first half of the year is behind us. So, how’s your financial health? While a financial checkup probably likely isn’t the first thing on your mind once the warm weather hits, the halfway point in a year is the perfect time to do a quick review of your financial situation and plan. Reflect on what’s behind you and plan for what’s ahead in your financial future. You can make any necessary tweaks to your savings strategy, debt repayment plan or budget, and still make progress over the next six months to achieve your financial goals before the year ends.
For many Canadians, the last year has felt like a blur. Since the pandemic took hold in Canada, many people have focused on just trying to deal with what is in front of them.
There have been financial strains and personal anxieties.
For some people, a financial check-up might feel like a small fish to fry among larger matters to consider. For others, the realities of pandemic financial strain are too uncomfortable to look at closely.
But a mid-year checkup can help you gain a concrete understanding of where you are financially, which can offer peace of mind even when some uncertainty of the pandemic still looms. You may find opportunities to manage your money more strategically, which can improve your financial situation in general. Or, you might identify opportunities to manage your debt more effectively and reduce money worries. Let’s get started on financial planning.
Otherwise known as calculating your net worth, this is your chance to gauge your overall financial health. Is your net worth positive or negative? Is it growing or shrinking over time? The calculation is simple:
Your Financial Assets - Your Financial Liabilities = Your Net Worth
Assets will include your checking and savings account balances, the market value of your house or condo, RRSPs, GICs, TFSAs, etc. Liabilities include any outstanding personal or mortgage debt, child support, alimony, bank loans, federal or provincial student loans, etc.
Here’s a more detailed explanation of how to calculate your net worth from personal finance writer Jessica Moorhouse.
Whether you call them goals, resolutions or promises to yourself, it’s a good idea to check in regularly to track your progress. Are your goals still relevant and realistic? Check in on savings, debt repayment, promises to change spending habits, etc.
If you haven’t made the progress that you expected, dig a little deeper and find out what’s been getting in the way. Have your expenses gone up or your spending financial habits changed? The last year has shifted many Canadian’s financial priorities and personal plans. The length of the pandemic has strained household finances and has made it harder to reach certain goals or accomplish certain tasks. Now is the time to revisit your timeline and adjust your plan if necessary.
The idea here is to avoid any unexpected and unwelcome financial surprises over the next few months if you can. As the provinces experience changes and expansions in their re-opening plans, certain costs may resurface that you haven’t seen in the last year, such as extracurricular activities for kids or travel expenses.
If you’ve figured out your net worth, you already know how much you owe. But what’s your plan for repaying that debt? Make sure you have a debt relief option that works for you and get the correct financial advice.
What about your credit behaviour? Over the last year, many households have relied more heavily on credit and borrowing to make ends meet. Are you regularly relying on credit cards or a line of credit to get through the month? Have you taken on any payday loans? Be on the lookout for warning signs of debt problems.
If the pandemic has made it difficult or impossible to get out from under your debt, or to meet your financial obligations, don’t wait to get help. A Licensed Insolvency Trustee (LIT) will meet with you initially for no charge and no obligation on your part. An LIT will make sure you understand all available debt solutions and help you choose one that fits your situation and allows you to become debt-free.
Ask yourself: Is my budget still working for me? For many Canadian households, the answer is no. For those impacted by job loss or reduced hours and income, increased costs of living or unexpected medical expenses, last years’ budget is probably obsolete.
If your goal is to reduce your debt/get out of debt, and increase your financial wiggle room, try to cut out some expenses altogether, or rethink how you allocate them in your budget. For example, you might need more to spend on groceries but less to spend on cable. You’ll be in much better shape at the end of the year if you have a plan in place that works for you, and balances your income, spending, debt repayment, savings, and other financial obligations and goals. If juggling expenses or cutting back isn’t possible, discuss your options with a Licensed Insolvency Trustee to achieve financial success.
Your credit score is an indication of your financial health. A higher credit score shows lenders that you’re a low-risk borrower and that you use credit responsibly. A lower credit score means you need to look a little deeper into your credit report. Once you understand what’s lowering your score, you can take the necessary steps to improve it. Checking your credit score regularly also alerts you to errors, fraudulent charges and identity theft.
If you want to learn more about what’s in your credit file, or you’re ready to tackle rebuilding your credit, check out these BDO Financial Wellness Podcast episodes: 9 things to know about your credit score and how to rebuild your credit in Canada.
In a normal financial year, you may have your income set up to withhold enough money from your paycheques to cover your taxes and even get a return.
But COVID-19 has changed things for many people. If you’ve been receiving COVID income assistance (such as Canada Recovery Sickness Benefit or the Canada Recovery Benefit), it’s a good idea to check the withholdings. The amount the federal government is withholding for taxes may not fully cover what you owe. If you think that you may owe additional taxes next April, consider putting a bit of money aside each month now, if you can.
If you suffered any kind of financial setback because of the pandemic, the importance of having an emergency fund won’t be lost on you. It can be hard sometimes to commit to an emergency fund. When times are tight, you may not have the ability to put money aside for a rainy day.
An emergency fund will help you stay financially afloat if an unexpected expense pops up. Job loss or income loss, medical emergencies, and extended sick leaves have been a common occurrence in the last year. Add to that the risk of “regular” unexpected costs, like car repairs, plumbing emergencies or vet bills, and you could find yourself unable to pay your bills without emergency savings – which can potentially mean taking on more debt. One solution is to consider putting your tax return into emergency savings or auto-depositing a certain amount each month for emergencies. Even a small amount put aside each month can help you avoid relying on credit if an unexpected expense comes up in the short or long term.
Do you need help finding the right debt relief solution for your situation? Reach out to a Licensed Insolvency Trustee today.
June 23, 2021
It’s that time of year. Summer’s in full swing and the first half of the year is behind us. So, how’s your financial health? While a financial checkup probably likely isn’t the first thing on your mind once the warm weather hits
