5 steps to get your finances back on track

Step 1: Assess your current financial situation

Sit down with a calculator, pen and paper and take a good, hard look at your finances. Are you behind on paying your bills? Do you have a lot of credit card debt? Do you have enough savings for emergencies? Are you on track to fund your retirement? These are hard questions, but you need to address them head on. This worksheet will help you get started.

Step 2. Review your financial goals

Think about what you would like to do in a year, five years, 10 years or more. Try to be a specific as possible.

For example, would you like to: Have some money set aside for emergencies?, Pay off your credit cards?, Take a vacation?, Fund your retirement?, Start a new business?

It’s easier to get your finances on track when you know where you want to go and why you are saving. Use this checklist to sort out your goals.

Tip: Sometimes goals conflict Paying for a child’s braces may take money from college savings. Taking care of aging parents could reduce saving for your own retirement for a while. The Prioritizer Calculator from CNN Money will help you rank your financial goals in order of importance to you, and give you a focus for your savings plan.

Step 3: Make a new budget

A budget is useful for everybody – even for people who just want to know where the money goes. Review your budget once a year so you can adjust your spending and saving as your financial situation changes. This process will help you:

• track everything you spend

• remind yourself about the bills you must pay each month, such as food, rent or mortgage, gas, hydro, and loans

• plan for costs you only have from time to time, such as clothes, gifts, entertainment, trips, or things for your home

• find ways to spend less, pay down debt and save more.

Are you spending more than you should? Need to find ways to spend less and save more? How can I cut my spending? Use this worksheet to record your budget.

Tip: Do you have a lot of debt? Use this calculator to find out how to pay it off as quickly as possible.

Step 4: Revisit your investments

After a major downturn in the markets, the mix of investments you hold – your asset mix – may have shifted. Of the money in your portfolio, more may now be invested in bonds, for example. Or, if you hold a number of mutual funds, you may have more money now in one type of fund. So it’s important to review and rebalance your portfolio now. In fact, you should review your asset mix at least once a year.

Look at how much you have invested in stocks, bonds, mutual funds, real estate, savings accounts and so on. Then determine whether you're comfortable with the balance you have between risk and return.

Remember: to pursue higher gains, you must also accept a higher level of risk. This is a major decision, so you may want to get professional advice before you decide. Read: What mix of investments is right for me at my stage in life?

Step 5: Review your retirement plans

Younger workers have time to make up any losses that could affect your plans to retire. But workers in their 50s and 60s are in a tougher position. Many face some difficult choices, including:

• work longer, so they will have more time to save and more time for their investments to recover. It will also reduce the number of years they will need to live on their savings.

• cut back their spending now, so they can save more in the years leading up to their retirement.

• retire as planned and learn to live on less.

If you are worried about how you will fund your retirement, these resources can help you take stock and take action:

• See how much yearly income you may receive from your RRSP savings once you retire using this calculator.

• Work out your retirement budget using this worksheet.

• Find ways to save more. Read: How can I cut my spending?

Remember: recessions like the one we have just experienced can be gut-wrenching. They may take a long time to recover from. But recovery is possible. The basic rules of money have not changed: save, pay down debt and invest

Are Canadians saving enough? In its 2009 annual survey, the Royal Bank of Canada asked nearly 1,500 Canadians across the country if they are socking away money for their golden years. Here are some of the key findings:

• 32 per cent said ‘no, they were not ready. That’s down from 24 per cent in 2008.

• Just over half of those ages 55 and up said they were ready for retirement. That’s down from 67 percent in 2008.

• Just one-in-three already have or plan to contribute to an RRSP for the 2009 tax year. This is the lowest level since 1996.

• Over half of those with an RRSP who are not contributing -- or who are reducing their contribution – said it was due to current economic conditions.