84 – How to Start the New Financial Year Strong

Wayne Kay 00:04
Welcome to the Debt Matters podcast, where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. 

I’m Wayne Kay, and in today’s show, we’re going to discuss how to start 2023 financially strong. You know, we’re all making resolutions about getting fit and eating healthier, but we need to be thinking about setting up financial resolutions. So what steps should you be looking at to make sure that you succeed and you’re actually better off financially at the end of 2023 than you are right now? We’re going to give you some ideas on maybe financial resolutions that you should make and the number one financial resolution that you should be focusing on.

Now, we’re doing a lot of ‘shoulding’, but we’re going to explain why with my guest today, Bonnie Hooley from LCTaylor Licensed Insolvency Trustee with offices in Winnipeg and Kenora. Welcome back, Bonnie.

Bonnie Hooley 01:02
Thank you, Wayne, for having me again.

Wayne Kay 01:04
You bet. I’m looking forward to our topic. I just love figuring – I love resolutions, especially financial resolutions. So we’re going to talk about how to start that 2023 financial year super strong so that we are in a better place next year than we are this year. So, New Year’s resolutions, do you make one?

Bonnie Hooley 01:27
Well, it’s ironic that we’re talking about resolutions when most of them fail. I did a little bit of research before the podcast, and it said that 23% of people quit their resolutions after one week, and that less than 20% actually are able to stick to their goals for the long term. 

So I know that I used to make a resolution every January, and somehow I got like a journal every year for Christmas. So every January is like day one. And I’d see the same resolution.

It was almost a hoot to go back now and read year after year. Same resolution, never achieved it. But I think with financial resolutions, if you do it right, I think they’re going to be achievable and they’re going to be fun.

Wayne Kay 02:12
Well, they do work sometimes. It was funny. Today I saw a friend of mine and he said, you know what? I did it. I made it a whole year without buying coffee before coming to work. And that was his financial resolution.

Bonnie Hooley 02:28
That was a great resolution. And the money he saved would be amazing.

Wayne Kay 02:32
Yes, and that’s what he was all excited about as well. So when you have the right resolution, I think they’re a lot easier. So I think financial resolutions do make sense.

Bonnie Hooley 02:43
Absolutely. Because I believe that regardless of your income, that you can’t afford not to have resolutions and you need them for a couple of reasons.

One is it gives your spending purpose, and also then you are happy with where your money is going. It’s not just slipping away like water down the drain. It’s purposeful spending.

Wayne Kay 03:10
And purposeful spending is good.

Bonnie Hooley 03:14
Purposeful Spending is good because then you have control over where your money is going, and so you can look back and be happy with what you did financially. And so purposeful spending would help you with that sort of thing.

Wayne Kay 03:26
And that means that you’re not just frivolously going out and buying coffee or just spending here, there, and everywhere.

Bonnie Hooley 03:34
Yes, and I say it with hesitation because frivolously buying coffee might be something you want to have in your purposeful budget. So, for instance, when I had set some budgets and set some goals, both my husband and I, we would have sort of pocket change that we could spend in a week.

And we knew how much we had, and so we didn’t have to really think about it. We could just sort of blow that money on what we wanted to blow it on without guilt. And we knew that in the grand scheme of things, it was accounted for. 

So it was part of our purposeful spending, even though it seemed a little frivolous to just spend it here and there on little things. So it’s kind of like a bit of an oxymoron there because it’s sort of like planned purposeful discretionary blowing.

Wayne Kay 04:27
But that’s a good thing. It was planned for. So you had it in the pocket, though? It wasn’t just randomly going on the card.

Bonnie Hooley 04:34
Yes, exactly. And that’s the key, is planning for it and setting the amounts.

Wayne Kay 04:40
Okay, so are there steps to setting up maybe successful financial resolutions?

Bonnie Hooley 04:46
Yes, I think the key for steps is making short term ones that are quickly and easily achievable and medium term ones and long term ones. So short term ones would be something you see quickly, like, I’m going to go a whole month without dipping into my overdraft, so you can see immediate satisfaction over achieving your goal. A medium one might be something that’s over a five year period, and so in that way, you’re sort of working toward it, but the goal isn’t endless.

And so I know when I first started budgeting, my first medium term goal was to take a cruise, because when I had been newly married, we’re going to do a cruise for a honeymoon, and we couldn’t afford it. And then every year thereafter, we just couldn’t afford it. So one year I thought, well, I’m never going to be able to afford it. So when I broke it down into how much I would have to put away over a five year period on a monthly basis, that was extremely affordable. So suddenly I had a goal that I could work toward, and it was very doable, and it became my first cruise.

And once I figured out how to do medium term goals, I was able to do more cruises. So you want to make a medium term goal that’s achievable, and then you want something that’s long term, like looking ahead 20 years from now, 30 years from now, 50 years from now. 

I remember when I had started out budgeting as well, there was a book that was popular out there called The Wealthy Barber, and it was a fable about a guy who made it bigger than all his friends that went to Harvard. And he had done it just by chipping away a little bit at a time over a long period. 

So when I pulled out my Compound Interest Calculator and figured it out, if you’re 20 years old and you start putting $100 a week away or a few hundred dollars a month, you can retire a millionaire and it’s not really costing you much more than some of your eating out at your local coffee shop. So long term goals sort of keep the purpose going and you can see yourself getting closer and closer to that goal as well.

Wayne Kay 06:58
And if somebody doesn’t have that book yet, it’s now – The Wealthy Barber Returns, I believe is the latest version. A great easy read, updated and just some great advice in there. Because I like you, I get so excited about that Compound Interest Calculator that it’s wonderful to run those numbers and you say 20 years at only, let’s say 4% or 5% compounding and you see what it ends up being and it’s shocking.

Bonnie Hooley 07:28
Yes, and I know it also works the reverse way for a mortgage. So I often tell people who are getting a mortgage, first of all, most mortgages people start out, they go for the 25 year mortgage and I say, well, ask your lender how much the payment would be for a 20 year mortgage. 

And normally the payment doesn’t jump by more than even $100 and it just depends on the size of the mortgage and what area of the country you live in. But because there’s so much compound interest in the initial five years, that just a little bit extra knocks years off your mortgage. And then if every year or every once in a while you’re putting extra down or adding when you get a raise, adding an extra $100 payment to your mortgage, you can get it paid off so fast and be mortgage free so much younger than everybody else.

Wayne Kay 08:21
Wow, great advice. Now, this podcast obviously is created to help people who are in financial trouble. And you did make one comment that you said maybe not going into overdraft for a month. 

So if you are in debt already and you are living on that overdraft, how do we end up crawling out of that or not using a credit card? If you can get out of it and then not use it again, that would be great, wouldn’t it?

Bonnie Hooley 08:49
Yes. The first thing you need to look at with regard to credit cards is that any time you’re not paying off your entire credit card, when you first get your credit card at the end of the month, you’ve spent more money than you’ve earned. So you look at your credit card spending. You have to start by saying, am I at least paying off what I charged this month and then a little more to pay down the principal? If you’re not paying off as much as you charge each month, then you’re living beyond your means. 

For an immediate goal you want to start either stop using the card and paying cash or using your debit and then trying not to dip into your overdraft so that you’re living within your means. 

Now, sometimes the hole has gotten a little too deep because you’re paying interest and penalties and now you have to use your cards just to keep up with the interest and penalties. And so when that happens, you might want to talk to someone like myself, a Licensed Insolvency Trustee, to see what options there are for getting you back on track, maybe at a bit of a quicker pace. Because there’s options under the Bankruptcy and Insolvency Act, like filing a proposal where you settle the debt and there’s a stay of proceedings.

And so you don’t necessarily have to be 100%, but it gets you back on your feet so that you can be productive again. Or sometimes, depending on how deep your hole is, you may need to even consider filing an assignment in Bankruptcy. But if your budget isn’t too far out of control, then sometimes starting by getting the credit cards dealt with and the overdraft dealt with might be the way to get you started on a solid plan for your future.

Wayne Kay 10:38
So when we’re setting that financial resolution, what should that include?

Bonnie Hooley 10:44
It should include things that matter to you. So if you don’t put things into your financial plan or your budget that matter to you, you’re not going to stick with it. So I’m going to exaggerate here.

If you set a goal that I’m going to raise $100,000 for the charity that’s called Help Rich Kids Buy convertibles, that’s not going to be something that’s going to be of interest to you and you’re going to lose interest quite quickly. 

But if you say, hey, I’d like my kids to have a university degree, so I’m going to start a registered education savings plan, that’s something that might matter to you and that’s going to make it worth maybe a bit of sacrifice to stick to. So you have to pick something that’s going to make it matter to you.

Wayne Kay 11:33
Okay, that’s a major one. How important is it to set the resolutions together with your partner?

Bonnie Hooley 11:41
Well, that is key and that’s not always easy because one of you can sabotage the financial plans, but most partners aren’t going to have similar interests to you. And your personality traits that helped you to attract each other are often opposites. And so what’s important to you is not going to be important to them.

And so setting the goals together can sometimes be a bit of a hardship. There’s going to be things you agree on, like maybe saving for your kids’ education, but there’s going to be things you don’t agree on. Like, I want to take more trips and the other person is not interested in trips, and maybe they’re more interested in paying down the mortgage. 

So you work together to say, okay, so how do we divide up our family income, our household income, in such a way that we meet things that are interesting to you, things that are of interest to us and our common goals. And it’s not as hard to do if you actually recognize it and sit down and discuss it.

So again, using my husband and I as examples, I’m a saver. I love seeing the money saved because it’s like a safety net in case something goes wrong and he likes the gratification of having money to spend. So we did up our budget in such a way that things that mattered, like getting the mortgage paid down, came first. Buying groceries, that was in the first column as well. But then when it came down to things, we had a little more discretion over.

Then we sort of split the budget up a little bit and said, okay, half of it is going to go to your what? I call frivolous spending and the other half is going to go to what he considered frivolous is say anything for a rainy day over and above the savings we already had and that we were all happy and we’re all willing to work towards meeting the goals that we’re setting.

Wayne Kay 13:41
Well, that’s great. When we were starting out as well, for the longest time, there was no savings. You just don’t have that when you’re starting out.

And I remember when we finally did start saving and we got the first $500 saved, I felt like the richest person in the world to have $500 extra dollars, and then it was $1,000. And then eventually I didn’t want to spend it. So it just kind of kept growing because I liked seeing the number grow as opposed to buying something with it. 

And even now, even though I could go buy something, I like to save up for it just with a little bit here and there. So it takes me a little bit of time. It may take me four months or something to go buy something that’s a little bigger, new guitar or maybe something like that. It just takes time to make it actually happen and I can appreciate it more.

Bonnie Hooley 14:38
And the fact that it takes time, it does make us appreciate it more. Because when you get constant instant gratification, then you don’t really appreciate what you have. So for people who started out poorer, they remember appreciating things so much more when they got them than when they were so easy to obtain.

So making it a little harder for yourself to obtain things by waiting to get them until you’ve saved up. And that sort of thing will just make you value it a whole lot more.

Wayne Kay 15:11
What do you think the number one financial resolution should be? The one people should focus on?

Bonnie Hooley 15:16
That one is easy, and ironically, most people don’t do it. The number one financial resolution is figure out where you’re spending your money. So track every penny for a month or two. And if you are good at tracking it, you’ll likely be surprised because once you’ve tracked it, then you’re going to say, do I like where my money is going? And are there areas that I would like to change and are there areas that my money should be going to? 

So tracking it gives you a snapshot of what’s really happening. And for most people who aren’t purposeful in their spending or who aren’t spending based on a plan that they’ve made, they’re usually quite surprised that things they think are draining their budget are not the things that are actually draining their budget. And so it helps you to really focus on what’s going to matter to you.

Wayne Kay 16:12
That’s great advice, Bonnie. Thank you very much for being on the show. This is very helpful. And I hope everybody really starts focusing on their finances in 2023.

Bonnie Hooley 16:24
Yes. Prosperous New Year to you.

Wayne Kay 16:27
To you too. Thank you very much for your time.

Bonnie Hooley 16:29
Okay. Thank you, Wayne.

Wayne Kay 16:31
Well, my guest today, Bonnie Hooley, you can learn more or schedule that free consultation with LCTaylor Licensed Insolvency Trustee by going to their website lctaylor.com. 

And that’s it for the Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcast from. And of course, for more information, you can always check out debtmatters.ca. Thanks for listening.