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Home finances: Start the year right with a healthy attitude to money 

A new year often inspires an overhaul of different aspects of our lives. For many, that can mean new resolutions related to money, debt or personal finance.

This is a great time to assess where you are financially and plan ways to improve your situation.

Ask yourself: Am I in a good financial position, or am I failing miserably? Have I saved enough for retirement; is my emergency fund big enough? Do I have too much debt? Do I have enough life insurance?

Forget the Joneses

One of the ways to judge how you are doing is to look at how you are doing compared to other Canadians.

Statistically, we call this relative benchmarking. I always caution people about trying to keep up with the Joneses.

If I told you that a study by the Canadian Financial Monitor (2009) said the average single Canadian had a net worth of $163,535 and an income of just under $40,000 per year, how would you feel?

As much as this data can be fun and interesting, it has a lot of flaws. For example, the “singles” category could include both 20-year-olds just starting out, and 50-year-olds who are financially established. So the income of “singles” likely varies dramatically.

What about those of us who aren’t single? According to the same study, the average income for families with kids under 12 is about $77,000 per year. I have four boys under 12, so my situation may be very different than that of another family with only one child who is under two.

Make it personal

As much as I enjoy statistics on Canadians, I will always preach the importance of personal benchmarking. It doesn’t matter what anyone else’s finances look like. What’s important is the shape your finances are in, and what you choose to do about it.

I’ve seen people with income of over $200,000 per year, but because they overspend, they are swimming in debt and payments. I’ve also met people who live within their means on $50,000 per year. Who cares if the average income is $77,000 or $100,000 per year? What matters most is your ability to work with your income and finances and work to improve it every year.

The best form of benchmarking is comparing your situation at two different points in time. For example, how does your financial situation look today compared to a year ago or a year from now?

Annual checkup

Get in the habit of a regular personal financial checkup. Start with a current assessment that includes two key things:

Net worth: Your net worth is simply your assets minus your liabilities. Once you know your net worth, your goal in the future should be to improve it every year. There are only two ways to increase your net worth: increase assets or decrease liabilities.

Cash flow: You need to know your income and your expenses. Some call this an income statement or a cash-flow statement.

The net worth statement and the cash-flow statement form the foundation of a financial checkup. If you want to get more detailed, consider including questions about any of the following:

Insurance: Do I have enough, and is it the right type?

Investing: What was my personal investment return in 2013? Am I invested in the right things?

Retirement planning: Do I have enough saved for retirement? Should I still be buying RRSPs?

Minimizing tax: Are there any ways to pay less tax legally?

Estate planning: Do I need a will? Is it time to update my will? What about my Enduring Power of Attorney and Personal Directives?

Saving for kids education: Am I putting enough away for my kids education?

Baby steps

As you can see, improving your finances can mean many different things to different people. When it comes to making changes, it’s easier to focus on one or two things than to try to overhaul too much at once.

The key to change is to make it as simple as possible. Pick one or two ideas and get them done. If you need support, find friends, family or professionals to help you stay on track. Good support can make a significant difference in follow-through on your new year’s resolutions. Good luck with your financial resolutions and initiating positive change.

Courtesy of Jim Yih from RetireHappyBlog.ca

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