The feeling of a fresh start from the New Year inspires many to set new goals for themselves. Fitness or diet resolutions are popular, but have you ever thought of trying out a financial goal? If not, why not have 2026 be the year you give it a try!
The financial goal you choose will depend a lot on what point you’re at in your financial journey. Below is a breakdown of the main steps to financial wellness in the order they happen most often. Read through to see which step you’re at and what goals within that step you can work towards this year.
Step one: Cash flow mastery
This step really comes down to two things:
- Creating a budget that allows you to live within your means.
- Tracking your spending so you can assess how well you’re following your budget
Budgeting has a reputation for being a bit of a downer and restrictive. Many people have found freedom in budgeting by reframing their perception of budgeting to see it as a tool for assessing and supporting what they value.
In case you need a starting point, here are a few commonly recommended budgeting methods you can try:
- 50/30/20
- Envelope
- Zero-based
- Reversed
- Value-based
In the end, there’s no wrong way to budget if the budget you’re using supports you in reaching your financial goal. Which is another way of saying, the right budget for you is the one you use. You’ll find that once you’re working with a budgeting method that works for you, the tracking your spending component of cash flow mastery comes easily.
Goal examples
- Try out a couple of budgeting methods to see which one works best for you.
- Do an honest assessment of how well your spending reflects your values.
- Boost your financial literacy by learning about a financial basics topic like compound interest.
Step two: Building financial resilience
This step is all about your finances being at a point where they can weather the occasional (and inevitable) bump in the road. A bump might look like needing to buy a new phone because your current one died, or it could be more significant, like losing your job.
Financial resilience is built in two stages that can happen separately or simultaneously.
- Paying off debt
- Building resilience funds
Paying off debt
Debt is the equivalent of a leak in a financial plan. It’s obvious, yet true, that a leaky bucket is much harder, if not impossible, to fill. So put your focus on stopping the money leak, and pay off your debt. This is especially important for high-interest debt.
Here are some great debt solutions for debt that’s still manageable on your own:
- Debt snowball
- Debt avalanche
- Debt snowflake
Here are some debt solutions for more serious debt that’s become too overwhelming to manage on your own:
- Debt Management Program
- Debt consolidation
- Consumer Proposal
- Bankruptcy
Building resilience funds
Once you’ve been able to stop the leak, or at least make it manageable, it’s time to switch to building resilience funds. Resilience funds are funds set aside to cover the cost of those bumps in the road we all experience at one time or another in life. There are two types of resilience funds:
1. Emergency funds are for the more significant bumps, like job loss or a major unexpected car repair. It’s recommended that a fully funded emergency fund be 3 to 6 months’ worth of expenses.
2. Sinking funds are for two types of larger expenses. The first is the type of expense you know will happen at some point, but you don’t know when. For example, needing a new phone or tires for your car. The second type is those you know when they will happen, but are very infrequent. For example, an annual insurance policy payment.
Both of these funds are there to protect your cash flow when big expenses come around. They make it so that when these expenses come around, you can pay them and your regular expenses without going into debt.
Once someone has a handle on cash flow and can put a little extra money towards debt and resilience funds, there’s a pretty common question that comes around: Which one should I focus on first? It’s recommended to start off by building a small emergency fund. This won’t necessarily be a fully funded emergency fund, but something around $1,000 will help cover a lot of stuff that might come up. This will help avoid having to take on more debt and feeling like you’re taking two steps back for every one step forward. Once this small fund is saved, then it’s recommended to change your focus to paying off debt.
Goal examples
- Do a no-spend month to save money that can go towards your goal.
- Pay off a certain credit card(s).
- Try out a side gig to help save more money.
Step 3: Invest
True wealth building starts when your money is put to work for you. Otherwise known as investing. By this point in the financial wellness process, people typically have a little money to set aside for investing. This might be to help fund their retirement, education, or something else. This is the step when a financial expert really comes in handy. The right expert will help guide you to invest in a way that is comfortable for you and helps build your wealth. Just be sure to research the person before signing with them.
Goal examples
- Check to see if your company offers RRSP matching.
- Review your investment portfolio to ensure it still reflects what you want it to.
- Set up an automatic transfer into your investment account.
Step 4: Protect
You’ve done all this work to set yourself up with a solid financial plan, don’t let it all be for naught. Protect your personal finances and your loved one’s peace of mind by putting the proper insurance and estate plans in place. Depending on your situation, you’ll want to consider:
- A will
- Credit insurance
- Life insurance
- Critical illness/accident/disability insurance
- Pet insurance
- Power of Attorney
- Update assets with appropriate beneficiaries
Set up a regular time, at least once a year, to review all these things. Doing so will ensure you’re always covered for what you need and let go of anything you don’t need, depending on what’s changed throughout the year.
You’ll want to ask yourself questions like:
- Did a big life change happen this year, for example, a birth, marriage, divorce or move? If so, what does that mean for the coverage I need?
- Are there new policies, insurance companies, or offerings available that would make it worthwhile to change my policy?
- Have you informed those that need to know (power of attorney, etc) about any changes and made sure they know where to find the documents?
Goal examples
- Write up a will.
- Choose one month to review all of your insurance policies.
- Organize all your financial documents.
Tips for setting and achieving your financial goal
Setting a financial goal is one thing; keeping and achieving it is another. Below are some tips to set you up for success.
- Choose a SMART financial goal.
- Choose a goal that gets you to stretch a bit, without overwhelming you.
- Ask for help from an accountability buddy.
- Regularly remind yourself of why you chose the goal.
- Don’t be hard on yourself if you slip up. It’s okay, just pick right back up from where you left off the next day.
- Take out time to give yourself a pat on the back when you reach the smaller milestones of your goal.
- Break bigger goals down into smaller sections.
Wrap up
If you’ve never considered setting a financial resolution, make this year the year. Set a goal using the tips we shared to continue along your journey to financial wellness. It may seem like a long road ahead of you, but every step, no matter how small, moves you closer to your financial goal.
