Personal Finance

With financial prospects looking much brighter than they did a year ago, it's time to review your game plan.
By Gail Bebee | 21/12/09

This year has been an extraordinary financial roller-coaster. As 2009 dawned, we were continuing to suffer through the worst global recession since the Great Depression. Subsequently, after stock markets bottomed in March, things began looking up.

About the Author
Gail Bebee is an independent personal finance speaker, teacher and the author of No Hype--The Straight Goods on Investing Your Money. She can be reached at gbebee@gailbebee.com; her website is www.gailbebee.com.

Thanks to unprecedented intervention by governments around the world -- everything from rock-bottom interest rates and massive loans to prop up ailing banks and the auto industry, to billions of dollars allocated to infrastructure spending -- the global economy and financial markets appear to be on the mend. Here at home, for instance, the S&P/TSX Composite Index is up more than 50% from its low reached on March 6, and is on track to gain about 25% in 2009.

As 2009 draws to a close, the stage appears to have been set for a coming year of economic recovery, higher interest rates and the return of inflation. With financial prospects currently looking much brighter than they did a year ago, investors will definitely need to make some adjustments to their game plans for the year ahead. With this mind, here are 10 financially focused New Year's Resolutions for 2010.

  1. Contribute to your tax-free savings account. This resolution makes sense no matter which way the economy is heading. Under the federal TFSA program, which was launched in January 2009, adult Canadian residents can contribute $5,000 a year to a TFSA and pay no tax on the profits earned with this money. If you already have a TFSA, resolve to make your contribution in January to maximize tax-free investment growth. If not, your first New Year's resolution should be to open an account.

  2. Assess your debt levels. If interest rates or your living expenses increased, could you keep up your loan or mortgage payments? Interest rates are at generation lows and are likely to rise in 2010. Tax increases are also on the radar screen as governments seek ways to repay the debt incurred in staving off financial Armageddon in 2009. The harmonized sales tax (HST) set to roll out in British Columbia and Ontario in July 2010 will increase taxes on many everyday services such as haircuts and cable bills. Paying down debt may be your most important New Year's resolution.

  3. If you are a mortgage-holder and your mortgage is up for renewal in 2010, consider renewing for a fixed term. Or, if you have an open, variable-rate mortgage on your home, consider converting it to a fixed term. In either case, you should be able to lock in historically low mortgage rates.

  4. Review the performance of your investment portfolio in 2009. Equities enjoyed a very positive year, with many stock indexes posting robust double-digit returns. Conservative fixed-income investments, on the other hand, eked out only a few percentage points in interest. Note for future reference what worked and what didn't work in a recessionary environment.

  5. Evaluate your financial advisor's performance in 2009. Assuming that you work with an advisor, did your portfolio perform according to the investment plan that you and your advisor agreed upon? Was your advisor communicating with you regularly and providing good service? If not, resolve to find a new advisor in 2010.

  6. Read up on investments appropriate for an inflationary environment, given the probable return of inflation as the Canadian economy recovers in 2010. This means learning more about investing in assets like real estate, commodities, real-return bonds and the stocks of companies with the power to raise prices at or above the inflation rate.

  7. Consider shortening the duration of your bond portfolio. If you hold bonds that will come due in the short to medium term, you may be able to reinvest them at maturity at what are likely to be higher yields.

  8. Update your financial goals for the year ahead, paying particular attention to adjusting your asset allocation and holdings in your portfolio to factor in an inflationary environment and higher interest rates.

  9. Make your RRSP contribution early in the year to maximize tax-deferred growth. For the same reason, make any registered education savings plan (RESP) contributions as soon as possible in 2010. An early RESP contribution has the added bonus of faster receipt of your Canada education savings grant. That's up to $500 per child annually of free money, deposited into your RESP account by the federal government.

  10. File your income tax return as soon as possible if you expect to receive an income tax refund from the Canada Revenue Agency. Use your tax refund to reduce debt, paying down costly loans such as outstanding credit card balances first.

Regardless of whether you are bullish on the economic outlook for 2010, now is the time to plan for the year ahead. You can benefit from reviewing the ebb and flow of your personal finances over the past year and developing your own financially focused New Year's resolutions. The 10 that I've suggested are a good point of departure.

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