8 steps for setting financial goals in the New Year

By: Robb Engen on December 19, 2023

This article has been updated from a previous version

After spending much more than we thought we would during the holiday season, most of us resolve to tighten our pockets come the new year. January usually begins with good intentions – maybe we stick to our New Year’s resolutions for a few weeks or months before ending up right back where we started. If improving your financial situation is one of your goals this New Year, it doesn’t have to be painful or tedious, especially if you take the right approach. Rather than listing vague goals without any measurable objectives, here are eight simple, yet realistic, steps for setting financial goals in the New Year:

Step 1: Identify your goals

The first step should be to make an honest assessment of your short- and long-term goals.

That could mean paying down credit card debt, saving up for a new car, or continuing to max-out your TFSA or RRSP so that you can retire early.

If you share finances with a partner or spouse, sit down with them and have a frank conversation about your financial goals. Agree on the top three or four goals and then rank them in order of priority. We’ll come back to these later.

Step 2: Take stock of your current financial situation

You have to figure out where you are now before worrying about where you want to go in the future. Take a snapshot of your current financial situation. First, add up all of your assets, including registered accounts and chequing and savings account balances. Then, subtract your liabilities – how much credit card debt are you carrying? Do you have student loans to pay off?

What's left over is your current net worth.

Step 3: Check your cash flow

One of the keys to building a strong financial plan is to understand how much you spend and save.

Use a spreadsheet or app to track what money is coming in (your salary, government benefits, and more) and what’s flowing out (rent, debt payments, utility bills).

Fill in all your monthly expenses in one column and your annual expenses in another column. Add up your expenses in both columns and subtract them from total net income on both a monthly and yearly basis. The result is your cashflow surplus and deficits.

Tracking your cash flow can give you a sense of control and confidence, making it easier to implement financial changes in your life.

Step 4: Match your goals to your spending

You’ve already identified your goals and determined your cash flow. Now it’s time to compare how your spending aligns with those goals.

If you have a cash flow deficit you won’t be able to hit your targets. See if you can free up cash by cutting back your spending in areas that are less important to you. Are you dropping nearly $100 on multiple streaming or subscription services? Maybe you can cut back on a few services, and that money can be better spent towards paying off your car loan?

If you have a cash surplus, that’s great! You can start allocating money to meet your goals right away.

This is one of the most important steps to setting financial goals, since it will help you determine whether or not your goals are attainable.

Step 5: Review your life insurance coverage

Your life insurance plan may be provided through your employer’s group plan. But with some basic calculations, you can determine if you have enough coverage.

A good rule of thumb is to get enough to pay off your debt, plus cover 10 times your income if you have kids under 10 years old, and five times your income if you have kids over 10.

Your workplace coverage should also include disability insurance, but if it doesn’t, get enough to replace at least 60% of your after-tax income. Remember, having a life insurance plan in place provides peace of mind and helps you take greater control of any unexpected financial hits.

Step 6: Reduce your taxes

Tax planning can be fairly straight-forward. You’re likely already taking advantage of the best tax shelters if you own your home and are contributing to your RRSP, RESP and TFSA.

However, if you are self-employed or rely on commission income, rental income, or significant investment income, consider hiring an accountant to help with income tax planning.

The best way to take control of your financial goals is to lay it all out – only when you know how much tax you need to pay will you be able to determine your financial situation and set financial goals.

Step 7: Create your investing policy

Every financial plan should include an investment policy statement that recommends how your portfolio should be invested. An investment policy that’s written down on paper can help you to stay the course with your investments whenever markets get volatile.

The policy can be as simple as stating that you want to invest in low cost, broadly diversified index funds or ETFs. You can rebalance annually to maintain an allocation of 25% Canadian equities, 25% U.S. equities, 25% international equities, and 25% Canadian bonds.

Any new money will be added to the lowest valued fund so that you’re guaranteed to “buy low.”

Step 8: Create or update your will

Every adult who owns assets and has a spouse or children should have a will. An accurate and up-to-date will is the only way to ensure your assets will be distributed the way you want them to be, and not left up to the courts to decide.

Path to securing your financial future

A good New Year’s resolution shouldn’t just say, “be better with money.”

You have to make concrete and measurable goals in order to make any progress. By implementing these eight steps you’ll not only start taking control of your finances, but you’ll actually create a financial plan and a path to securing your financial future.