- January 6, 2021
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New Year’s resolutions are an age-old tradition dating as far back as ancient Babylon. In those days promises to repay debts and the return of borrowed items was believed to be rewarded with a fruitful harvest season. Modern-day resolutions have shifted a bit, where people resolve to develop good practices, change undesired behaviours or accomplish a personal goal.
After 2020, though, New Year’s resolutions may look a little different. Perhaps of greater priority will be creating financial resilience, particularly after an economically challenging year. According to the OECD, financial resilience refers to individuals’ ability to cope with both the predictable and unpredictable impacts on their finances. It is measured by the following six factors:
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Control over money - This involves a dutiful watch over one’s finances with limited indebtedness to reduce the risk of financial stress;
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Control over expenditure - Financial prudence in managing expenditure and the consideration of the affordability of purchases;
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Availability of a financial cushion - Are there savings or other means for one to sustain oneself for a period of time without an income?
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Ability to cope with a financial shortfall - Has one had the experience of a shortfall and how much is one worried about these shortfalls?
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Financial planning strategies - One is actively saving, investing and pursuing long-term financial goals;
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Fraud awareness - One is aware of financial scams and possible fraud and is taking care not to fall victim to them.
Determining your level of resilience may be a good first step in streamlining your financial New Year’s resolutions. To address any gaps, Assistant Vice President of Investments, David Slatter, says stick to the basics. “The same rules apply,” he said. “You’ve probably heard it a million times by now, but the key to financial resilience is still the same - create a budget, track your spending, build an emergency fund, save for your retirement and invest in a diverse portfolio. These are basic principles that will help you navigate through a financial crisis.”
If your goal for 2021 is to work on your finances, David suggests that you focus on one thing at a time. “The problem with New Year’s resolutions is that they are often unsustainable. One study shows that nearly 80% of them fail,” he said. “Tackling your goals one at a time with a workable strategy increases the likelihood that you’ll achieve them. For example, if your goal is to invest more in 2021, there may be several steps involved in making that happen. Imagine trying to accomplish this goal and adding another one that also has some steps and another one, and so on. It can quickly become overwhelming. Focus on one thing and you increase your chances of success.”
A new year often comes with a new perspective and a new way of doing things. However, when it comes to your finances, the same basic rules apply. Before you dive into your financial New Year’s resolution, speak with a financial advisor who can help you address any gaps and set you on the path to achieving your goals.