2023 is fast approaching and there is no time like the present to prepare for it. Many of us prepare ourselves physically (getting gym memberships that we’ll likely never use), mentally (new year, new me am I right?), emotionally, and more…but what about preparing financially? Not sure how to do that? I’ve got you covered. Here are six things you can do to prepare your finances for 2023.
Review 2022 To See What Went Well & What Went Wrong
Now is the time to look through your financial statements from 2022 and see what went wrong throughout the year. This includes your budgets, your investment statements, your banking statements, and whatever else you use to track finances. Analyze where you spent a lot of money and why. Was the spending warranted (i.e. self care, therapy, necessities) or was it unnecessary? Was the overspending as a result of inflation or recklessness? Also, compare your statements month over month so you can analyze your spending habits relative to a similar time period. This can help you see if it you simply had a ‘bad’ month, or if the overspending was a constant in your life. Now that you’ve identified what went wrong, you can make plans to improve.
Look at the bad but don’t forget to celebrate and learn from the good as well! It’s important to see what went well so we can replicate it for the next year. Good habits are hard to form, so celebrate them when you have been able to. I was able to invest over $20,000 in 2022. Looking back to see how I did this allows me to invest even more in 2023.
Analyze Contribution Room
In Canada, we have the privilege of having access to a variety of investing accounts, many of which are tax-deferred or tax-free. This includes the Tax-Free Savings Account (TFSA), the Registered Retirement Savings Plan (RRSP), and if you have children, the Registered Education Savings Plan (RESP).
Each year, the government gives us an amount that is available for us to invest that we do not have to pay any taxes on, and we should all be maximizing that! Say you want to invest $20,000 next year. Before investing any of it, you should see how much contribution room is available in your TFSA and RRSP before you go on and invest in a non-registered account.
Learn more about the TFSA here:
Learn more about the RESP here:
To see how much contribution room you have available, login to the Canada Revenue Agency website.
Analyze Your Savings Accounts & Pick The Highest Interest Rate Option
I’m always speaking about the importance of high-interest savings accounts. If you don’t know what they are, it’s essentially a savings account that pays you a bit higher interest than a typical savings account. Of course, you won’t become wealthy by keeping your money here, but it’s better than no interest! What many people don’t realize is that there are levels to high interest savings accounts. While some will pay you 1%, others will pay you up to 4%, take advantage of the ones that pay you the most!
Before your enter 2023, I want you to watch this comparison video of the different Canadian savings accounts and change yours to the one that will pay you the most. My favourites right now are EQ Bank and NEO Financial.
Do A Deep Dive Into Your Debt
We all hate the dreaded ‘D word’, but it’s important to tackle it head-on instead of pretending it isn’t there. Ask yourself, how much debt do you currently have? Look at your student loans, your credit cards, your mortgage, payday loans. Write down every outstanding debt, the interest rate, the minimum payment, and when it is due.
Evaluate which ones should be paid off first. There are many ways to choose. You can may want to pay off the one with the highest interest rate, or the most annoying debt, or the most pressing debt, it depends on your situation and what gives you peace of mind. The most important thing is to create a plan to pay it off.
In this podcast episode, I interviewed Nathalie who paid off $70,000 in debt and she shares how she did it. Her story may be the encouragement you need to get going.
If you have a mortgage, realize that the Bank of Canada may increase interest rates in 2023 – forecast this into your financial planning. If your mortgage goes up by 2% can you afford it? If you can’t now, what changes do you need to make to your budget to ensure you can?
Philanthropy is a great thing to do and rich people do it well. You know why? It’s not because they are more kind than the rest of us, it is because it helps them lower their taxable income. If you are a high earner, look into donating to registered charities in order to lower your taxable income for the year. You can also look for other tax credits via the CRA site.
Set Realistic Goals For 2023
Last, but not least, set your financial goals for 2023. These goals should be around income, savings, investments and debt. Here are some questions to ask yourself:
- How much money do you want to make? What do you have to do to make this much?
- How much do you want to save? Are you saving for an emergency fund? House? Car? Trip? What account are you saving this money in?
- How many vacations do you want to go on and how much will it cost to go on them? How can you save towards this goal?
- How much money do you want to invest in 2023? Will you be investing in a TFSA or an RRSP?
If you need help staying accountable to these goals you’ve set, you can join my accountability group. Register here to be the first to be notified.
Wishing you a successful & financially abundant 2023!