Top 10 Things to Know to Be in Control of Your Finances
Want to get serious about your finances?
Every day I talk to people who come to see me for financial advice because they’ve come to a point where they realize – “I should probably do something smarter with my money, but I’m not quite sure what.”
When you get to that point, what do you do?
What are the most important things to know about investing?
How do you manage your money based on your life goals and priorities?
My latest blog post, YouTube video and podcast episode is an overview of financial planning to help you figure out where to start, so you can spend and invest your money in smart places based on your values, and what’s going to give you the best leverage for the future.
1/ Spend less than you make.
- Not a budget. Just understanding your income & what your lifestyle costs.
- Decide on your cash flow – You are not on a treadmill. Control.
- Live intentionally.
2/ Pay yourself first.
Try to save at least 10-20% of your gross income.
3/ Understand your values. What’s important about money to you?
Freedom. Security. Independence. Self-confidence. Control. Fun.
4/ You have many goals. Decide on your priorities. Focus on 1 or 2.
- Move out and get your own place – Freedom.
- Buy a car – Freedom.
- Buy for 50% less.
- Spend money enjoying life with friends. – Fun.
- Pay off student loan. – Usually lowest priority. – Security.
- Buy a home. – Security.
- Start long-term retirement savings. – Security, independence, freedom.
5/ Manage debt wisely.
- Your credit rating is an important asset. Equifax or TransUnion.
- Avoid high interest debt. Credit cards have hidden “Gotcha!”
- Low-rate debt that finances growth can be good – mortgage or investment loan.
6/ How to save for & buy your home. Security.
- Avoid being “house poor”. Buy home that allows you to still save 10-20% of your income.
- Try to avoid CMHC with 20% down.
- For example, condo for $500,000, $100,000 down.
- Get mortgage preapproval to see what you qualify for.
- FHSA first. $8,000/year. Save $40,000, or $80,000 for a couple.
- Then HBP. Save $35,000, or $70,000 for a couple.
7/ Magic of compounding. Rule of 72.
8/ Have a retirement goal. Financial independence.
- Make it Your goal. Not what other people might want.
- Interactive Financial Plan.
- Sample retirement plans.
- Bad news – You need a lot more than you think.
- Good news – You can get there by investing a lot less than you think.
9/ Invest effectively. Learn to have a higher risk tolerance.
- Asset allocation – Stocks, bonds, cash. Define.
- Risk tolerance questionnaire is not who you are. It is a learned skill.
- Risk tolerance – Ability to do nothing when your investments go down.
- Most people buy after investments are up & sell after they are down.
- Markets move in cycles. Trends always reverse.
- You need 7-8%/year long-term to retire comfortably.
- Equities are the highest return asset class.
- Equities are reliable long-term. Learn about it.
- Avoid “home country bias”.
- Invest in global or US equities – broad indexes (S&P500 or MSCI World Index) with low-cost ETFs or index funds OR invest with All Star Fund Managers.
- Most fund managers lag the market – Mostly because of trying to get “reasonable returns with less risk” and not trying to beat the index.
- Some fund managers have 15-30-year track records beating the index. We think it’s skill.
10/ Borrowing to invest is the secret to major wealth. “Leverage”.
- Amount of dollars invested is the secret.
- Leverage is risky.
- You have to pay loan even if investments go down.
- Only do it if you commit to 20+ years to have a very high chance of success.
- Smith Manoeuvre
- Lifecycle Investing
- Rempel Maximum
Ed
Planning With Ed
Ed Rempel has helped thousands of Canadians become financially secure. He is a fee-for-service financial planner, tax accountant, expert in many tax & investment strategies, and a popular and passionate blogger.
Ed has a unique understanding of how to be successful financially based on extensive real-life experience, having written nearly 1,000 comprehensive personal financial plans.
The “Planning with Ed” experience is about your life, not just money. Your Financial Plan is the GPS for your life.
Get your plan! Become financially secure and free to live the life you want.