Money Management, Personal Finance

Attainable Ways to Improve Your Finances in the New Year

by Max Kirouac CFA® – Investment Counsellor, BMO Private Banking

Summary: Improve Your Finances

I have a Jay Gatsby-esque obsession with self-improvement. This often leads me to bite off more than I can chew and struggle to make real progress in any one area. As the calendar turns over, a lot of other people start behaving in the same way. Unrealistic commitments to eat healthy, exercise every day, and master the bongo drums are made without consideration for the effort it will require. Too often, efforts to improve your finances fall into this category.

Some of these financial resolutions take considerable time and dedication. For example, upskilling to improve employment prospects, developing a strategy to pay down debt, and reducing the fixed costs associated with home and vehicle ownership. But there are also opportunities to improve at the margins with a relatively low degree of effort. Here are a handful of financial New Year’s Resolutions that you can accomplish before the motivation starts to wear off.

Review Memberships & Subscriptions

Auto-renewing memberships can be a slow bleed for your finances. A lot of people are surprised when they review their subscriptions and see that they’re paying for multiple services that they don’t use or for multiple services offering the same product. For example, having an Apple Music and Spotify subscription without realizing it. My advice is to review your subscriptions, assess your use of each one and unsubscribe from the ones that you’re not using. You can always resubscribe later.

The Gym Membership Dilemma

The most glaring example of this is unused memberships is gyms. The unfortunate reality is that having a gym membership will not get you into shape if you never go. A gym membership is not easy to give up – it feels like an admission of defeat. New Year commitments make canceling gym memberships less common during that period. Many believe that having the membership will lead them to feel financially compelled to exercise, but this empirically isn’t true. The membership model subsidizes active gym-goers with the dues of non-users. Why can Planet Fitness sell 10,000 memberships for a gym with a capacity of 300 people? Because over half their paying clientele never set foot in the building.

I’m certainly supportive of regular exercise, but I feel that from a financial perspective a gym membership must be earned. Pay drop-in fees until you know you’ve established a routine that you will adhere to, and only then pay for a membership. This may sound financially inefficient, but a couple of overpriced drop-ins are a lot more affordable than a gym membership you never use.

Other examples of expensive, underutilized subscription fees are everywhere: magazines, premium versions of websites, a streaming service you subscribed to because there was one show you wanted to watch. Take 20 minutes to review a monthly credit card statement and cancel any unused services.

Haggle for Existing Services

The fee models for cable, internet, and phone are not set in stone. Each additional customer is just making use of existing infrastructure that telecoms providers already possess so variable cost per client is effectively zero. In other words, almost every cent you pay for these services flows directly to profit for the provider. These companies are therefore better served offering discounted rates rather than losing customers.

In Canada, industry concentration is high so threats to cancel can come across as hollow. Doing research is essential. Investigate competitors’ offerings and rates paid by friends and family for similar services.

Identify One Area to Save in Your Discretionary Spending

I used to spend quite a bit of money on books (humblebrag). A couple of years ago, I bought a Kobo for the convenience of reading on a portable device with backlighting instead of having to carry around books. Once I had it, I realized it could be linked to my library account and used to borrow e-books. I wasn’t just able to get books for free; this was also much more convenient than going to the bookstore or library.

Discretionary spending is personal and you shouldn’t deprive yourself of the joy you get from spending money on things you like. However, there may be room at the margin to spend money in ways that you enjoy while finding an opportunity to save. Take eating out as an example. Change your lunch routine. Bring your lunch from Monday to Thursday, then enjoy a sit-down meal on Fridays.

Do Something Productive with the Excess Funds You Discovered

Initiate (or increase) a pre-authorized contribution to your TFSA and/or RRSP, pay down debt, or give to charity.

Start with one of these, or do all four. It’s an easy way to immediately improve your finances and start your year on the right foot.

Opinions are those of the author and may not reflect those of BMO Private Investment Counsel Inc., and are not intended to provide investment, tax, accounting or legal advice. The information and opinions contained herein have been compiled from sources believed reliable but no representation or warranty, express or implied, is made as to their accuracy or completeness and neither the author nor BMO Private Investment Counsel Inc. shall be liable for any errors, omissions or delays in content, or for any actions taken in reliance. BMO Private Investment Counsel Inc. is a wholly-owned subsidiary of Bank of Montreal.

Max Kirouac
About Max Kirouac

Max Kirouac, CFA®, is an Investment Counsellor at BMO Private Banking in Winnipeg, Manitoba. If you would like to discuss this article more with Max, connect with him on LinkedIn.

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