Patricia Lovett-Reid

Goodbye 2009, welcome 2010! For many of us, it's time to make New Year's resolutions. I'm sure you or someone you know has resolved to lose some weight, quit smoking or watch a little less TV than in the past.

As I was thinking about my own resolutions for 2010, I realized that we tend to think in terms of negatives. I won't do this or I'll stop doing that. I'm more of an optimist. Why don't we resolve to grow a little bit richer this year? It's easier than you think and it doesn't involve forgoing anything that you love. It's hard to stick to a plan that has you yearning for chocolate. It's easier to stick with a positive plan that involves a few minutes of your time each month.

So, how can you ensure that you're better off in 2010 than you were in 2009?

Step one: Take control of your finances. This is easy. In fact, you don't need to do very much at all. I recommend setting up a professionally developed financial plan. A qualified financial advisor can help you set achievable goals, and guide you on the path to achieving those goals. He or she can help you set benchmarks for your portfolio to ensure it's performing as you need it to.

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Step two: Pay down debt. Even Bank of Canada Governor Mark Carney is worried about how much debt we're carrying. As of the end of the third quarter of 2009, Canadians now owe $1.45 for every dollar of disposable income. A credit card with a $5,000 balance, 3 per cent minimum payments or $50 whichever is greater, and 19.5 per cent interest, will take 10½ years to pay in full and cost you $4,557 in interest.

The best strategy is to pay down your most expensive debts first. Pay down high interest credit cards and consolidate the balance into a single lower interest loan or home equity line of credit. Set up a pre-authorized payment plan. You'll adjust quickly to the new cash flow situation, and the loan will pay off faster than you think. Then, pay down non-tax deductible debt. If the expected after-tax return on your investment portfolio is less than the interest you'll pay on your debt, it's better to focus your attention on paying down the debt.

Step three: To make sure you don't incur more debt in 2010 set an impulse buy threshold. You can tell yourself, "I'm going to spend less this year," but it is such a vague goal that it'll wind up like many other long-forgotten resolutions. It's much easier to set a budget, and give yourself some wiggle room for spur-of-the-moment purchases. If your limit is $100 dollars (or whatever amount that's right for you), you'll be less likely to go overboard when you see that great pair of shoes on sale.

If you follow steps one, two and three, step four will almost take care of itself.

* Savings calculator: Calculate your way to savings

Step four: Boost your savings rate. You'll have extra money now that your debt costs are lower. You can contribute that money to your RSP and reduce your personal income tax. Also, inside the RSP, the savings will grow tax deferred and provide you with a secure retirement nest egg.

Step five will also grow out of the previous steps.

Step five: Become more tax-efficient. We spend more on taxes than anything else throughout our lives. Use tax optimization strategies such as income splitting with family members, appropriate asset location between RSP/TFSA and non-registered accounts and life insurance for the tax efficient transfer of wealth to the next generation to keep more money in your pocket. Speak to a tax expert on how you can lower your tax bill.

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The final step: review, adjust and enjoy. Along with your financial advisor, review your plan at least annually or anytime you go through a major life-changing event like marriage or the birth of a child. Make any necessary adjustments and enjoy the fact that you're well positioned for financial success.

Essentially all you've done is come up with a plan that lowers your debt and tax spending while increasing your savings. The best part is that your day-to-day cash flow will remain relatively unchanged, and impulse spending will be guilt-free. Hopefully, you'll wind up richer by 2011 and you'll never have to skip dessert.