Every year, a little better

This is a guest post by Robert, who lives in Calgary and worked as a financial adviser before retiring at age 35. He is married, has three kids and has returned to school with the goal of eventually living and working overseas.

It’s that time of the year when many people reflect on the past and plan for the future. The new year is a time for resolutions and a firm commitment to make our lives better (for a few weeks, anyway). It’s especially helpful to focus on things we can control (like how much exercise I do) instead of things we can’t (like how much exercise my wife does). I’d like to share a few ideas for resolutions that our readers might consider for 2013.

If you can earn more, that might make a good goal. For example, if you have an opportunity to work overtime (without impacting your quality of life), or if you work on commission, or if you can negotiate a raise, that increased income might give you the biggest benefit. Some people receive pre-determined raises each year. What I recommend is committing all (or at least half) of your increased income to either savings or debt repayment. That way, you gain some long term benefit from the increased income.

If you have debt, especially if the amount is large and the term (amortization) is long, increasing your debt repayment can have huge long term benefit. Paying down a little extra principal can really cut down the amount of interest that you pay over the life of the loan. You can use an online mortgage calculator (or car loan calculator) to prove this to yourself. If you have a line of credit, try increasing your monthly payment by $100. Or if you have a mortgage that allows prepayment, try to save up for a $1000 pre-payment.

Almost everyone can save more. It’s often difficult to decide where to spend less, but most of us spend all of our income. In my experience, spending often expands (or contracts) depending on available cash. If that’s the case for you, direct an extra $100 to a savings account each month. If you find that you have difficulty making ends meet, you can take some back out. But most people can stretch a little and find that they hardly miss the extra money. At the same time, it begins to accumulate for your long term benefit.

The ideal resolution would be to do a little of each. Get a raise and direct half of it toward additional savings. On top of that, increase debt repayment and savings by a small amount each month. If you do that, you almost guarantee that 2013 with be a better year financially than 2012.