January 10, 2012, 5:00 am

How I Will Take Control of My Finance in 2012

by: The Financial Blogger    Category: Assets and Net Worth
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I really like the beginning of each year since I’ve started this blog. I’ve realized that I achieve more things in my life since I started authoring The Financial Blogger. And each year, I set very specific goals for the upcoming 12 months.  For the past 2 years, I’ve made these goals “public” on this blog and I follow-up on them in June or July to see if I’m on track or not.

 

So far, I was able to achieve most of my personal goals. I am convinced it is because of the additional accountability I get by posting them and letting your know about it. For this, I have to thank you! I hate to lose and telling people that I have lost is even worse for me. I guess this is why I get so motivated to pursue my objectives!

 

For the past 2 years, most of my finance goals were oriented towards making more money. Only 4 years ago, I was making about $60,000 per year. I have broken the 6 figure income at the age of 28 (2 years ago) and crushed 2011 with over $176,000 in total income. While I’ve focused heavily on climbing the corporate ladder and finding a high paying position, I’ve also pushed my online company to produce some serious income (we went from $18,403 to $124,514 in 2010). This year is going to be different though.

 

I’m not going to focus on income creation.

 

I’m not going to focus on asset building.

 

I’m going to focus on taking control of my finances!

 

What does this mean? Well, it’s quite simple. While I was able to multiply my income by 4 in the past 4 years, I’ve certainly multiplied my expenses by the same factor (if not more!). I bought a huge house, drive an expensive (gas consumption wise) sports car, ate at great restaurants and drank a lot of wine (lol!). So while my net worth has kept increasing (latest result with my bonus to come at the end of January!), it was mainly due to the growth of my assets and not from a decrease in my debts. And recently, this has started to bug me big time. This is why my goals are slightly different this year:

 

Going under $300,000 in debt

 

As of my November net worth statement, my debts total $343,070. To be honest, there will be about $25K-$30K paid on them by the end of January. So my goal will be roughly to pay over 13K in debts this year. This cannot really be seen as an aggressive objective per se (as it only means 1K per month), but considering the fact that I have constantly overspent for the past 2 years, I think it will be a important feat to reverse the trend and start paying back my stuff on a monthly basis. ‘Cause the problem lies right there: I’ve been dependant on the size of my annual bonus to pay off my debts for the past 3 years. I need to be able to pay for all my stuff with my bi-weekly pay check and just enjoy my bonus at the end of the year whatever it may be.

 

I’ve already taken some action to realize this objective:

– I won’t be working 1 hour away from my house anymore (more details to come about this project!)

– I reviewed my insurance policies a few months ago and saved $50/month for the same protection

– I reviewed my cable bill a few days ago and reduced it by $15/month

– I’ll be cooking more (since we are expecting our 3rd child in a month or so, I won’t go to the restaurant very often!)

 

I’ll also be more cautious about my spending and plan in advance. For example, we will install a pool this summer, but this will be paid for by my tax return which is already planned. Therefore, I won’t be counting on credit to pay for it!

 

Setup an RESP for my kids (yeah, I know, I suck!)

 

William is now 6 and I haven’t setup an RESP for my kids yet… man I suck sometimes! This year, I want to not only open the RESP but put $2,400 in to it. This won’t happen until I get my finances under control but I will eventually setup the RESP and invest $200/month into it. I’ll obviously have to invest a lump sum to have it hit $2,400 for 2012 but it will be set for future years.

Since we get a 30% subsidy from the Government, this will make the sum of $3,120 per year. If I calculate that I will start withdrawing money from this account when William is 20, I will have the amount of $58,425 (or $49,455 in today’s dollar considering a 2.25% inflation rate) if I invest at 4%. Since a year in university cost about $5K in Quebec today, I will have enough to support my 3 kids going to University without any problems.

 
oh, and the only book you need if you want to setup a RESP for you kids is this one:

Make $130K this year

 

Huh? My goal is to pay off more debt and I aim for a lower income? What the…???? yeah… well this is also part of a bigger plan where I won’t be working downtown anymore. So on one hand, I’ll be saving a lot in the cost of transportation, but on the other, I’ll be making a lot less. Last year, while I made 176K, I got 64K in bonus. Therefore, the rest of my income totals $112K. I know I won’t be getting a similar bonus this year since I’m leaving downtown. This is why I aim to generate an excess of roughly 20K from my “base income”. This could come either from my bonus or my online company. Speaking of which, I’ll be back with my blogging goals for 2012 tomorrow.

 

So what do you think? And what are your goals?

Do you think I can do it? Man, I was depressed to see that I’ve increase my debts by 18K in 2011 instead of paying it down… I hope that this year, I will not only reach a “deficit 0” but also pay down for 13K of debts! Do you think it’s feasible, even with a smaller income? And what about you? Do you have any specifics goals for 2012? Anything you want to crush?

 

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Comments

you can do it buddy, but are you moving out of DT by choice or are being forced to? why not keep that role, make more, and juggle as you have been doing? doesn’t seem like cutting back or paying off should take a significant amount of your time and attention to the point of cutting back from work significantly. what am i missing?

Excellent goals! I’m sure you’ll destroy these and even surprise yourself. What am I going to do? Max out my Roth-IRA and 401k and boost my emergency fund to 10k. If this happens, I might even buy a condo! It’s game one baby.

Have you made a graph of your income history from when you started your career until now? I bet it would look pretty impressive.

Good luck TFB! I like the focus on debt as I think 2012 is when the pressure starts to show on everyone who love DEBT!

Good idea to start focusing on reducing debt.

Thanks for putting up my book – you might want to consider using the amazon.ca link however – that’s the one where people tend to buy from.

by: The Financial Blogger | January 10th, 2012 (9:18 pm)

@Sunil,
I’ve made the decision to go closer to my house, I wasn’t forced. Keep in mind that 64K out of the 176K I made in 2011 is a bonus based on my performance. This was an exceptional year and I doubt I could have done it again in the same book. I know that by switching to another book, I’ll have to start over and I won’t be making a killer income in 2011. However, it doesn’t prevent me to go back to 175K next year ;-D

@Jon,
10K? man that’s some comfy emergency fund! don’t you think it’s too much?

@Liquid Independence,
that’s a very interesting idea! I’ll keep a note on it ;-D I’ll have to do a small research on that to make sure numbers are accurate 😉

@Brad,
Yeah… I’m thinking that I better pay it off while the interest is cheap!

@Mike,
doh! I wasn’t too smart on this one 😉

[…] TFB told us how he was going to take control of his finances! […]

[…] 10. How I Will Take Control of My Finance in 2012 @ TFB. […]

Aggressive objectives can be overrated. If you start off with something easy you’ll build up the momentum to do more later! You’ve probably seen the same thing with your income already. I have a good post coming up next week about this.

Your plan sounds great and when you make a good income you don’t stop to think about how comparing insurance companies can lead to significant savings but it can. Every bit counts and there’s no reason to not build up your retirement now while you’re young so you don’t have to worry later.

Howdie mike,

What about using your entire 64K bonus to pay off all your debts?

Sam

by: The Financial Blogger | January 16th, 2012 (4:31 am)

Hey Sam!

This is exactly the goal, but the Government won’t let me: I have to pay taxes on the bonus before I can use it (51% when I calculate all type of taxes). I have received 6K throughout 2011 from the 64K bonus. Therefore, I’m receiving 58K this month, minus 29K in taxes. I have about 29K that I will use to pay off my debts. I’ll provide my net worth this week, it will be part of it ;-D

Why not use a semi-snowball technique. Figure out which debts will free up some cash flow and then use that towards your $1k+ per month debt payoff

i like the thought process of documenting your stratey. The investment world sucks right now but I have been mazimiizing rrsp for tax as well as the TFSA. I bought gold stocks as well as ford stocks back when TFSA started. and that has gained me 26% over the last 3 years. I am now contemplating on borrowing on my home line of credit and making that equity work now while interest rates are low. My intent is ti to buy silver (physical bullion) as it will increase. When I hit a 25 % increase in silver I will sell and invest in blue chip dividend stock for retirement. So my strategy is increase debt due to borrowing on the equity but capitalize now instead of trying to be debt free. A leverage loan is also good for investment if interest rates are high as another vehicle to make assets work. investment debt is good I think!

[…] I’m expecting a good month for March. This is really where we will see if I made a real statement when I said that I was taking care of my finances in 2012. […]