I’ve read a lot (and I mean A LOT) of finance books over the past couple years, and once you’ve read more than five, you’ll realize that all of their key points for living a financially savvy life are basically the same. Personally, I find that kind of assuring to know, because it means that basic personal finance really isn’t that complicated. It’s only when you get to choosing the best stocks or learning how to run a successful business that things get a bit confusing. But if you are looking for the bread and butter of personal finance, these 5 tips are all you need to know:
Pay down debt as soon as you can - Debt has many different forms. There’s what’s considered good debt, such as a mortgage on a property, because the goal is to eventually sell it at a profit. Then there’s bad debt, mainly consumer debt, which is stuff you’ve bought on credit which declines in value as soon as you bring it home. Rule of thumb is to pay the bad debt off first, then the good debt. Or don’t buy stuff on credit cards that you can’t afford in the first place. 18% interest, are you serious? Come on!
Set up automatic savings - This just makes life so much easier. Once you’ve created a budget, set up an automatic savings trigger with your bank, so with every paycheque a set amount of money is transferred to whatever savings or investment accounts you want without you having to lift a finger.
Differentiate between your needs and wants - I pretty much do this before I buy anything. If I’m at Shoppers and I see something on sale, I still ask myself “Do I actually need this, or do I just want this?”. If you don’t know the answer to this, needs are food, clothing, healthcare, shelter and transportation. So even if that bottle of aqua OPI nail polish is on sale for $8, it’s a want not a need.
Start young - The younger you start saving, investing and preparing for your future the better. There’s the popular equation you’ll find in any finance book, if you start an RRSP with $1000 when you’re 20 and get 8% back on that investment every year, you’ll be a millionaire by the time you’re 50. Of course I certainly haven’t found a way to get an 8% return on my RRSP yet, but I’m still glad I started early because it’s a lot hard to start saving for retirement in your 50’s than in your 20’s.
Tithing - Another term for giving back to society. This can be done either by setting up an automatic savings trigger to put aside a percentage of your paycheque to eventually donate to a charity, or you can volunteer your time to a great cause. Time is money after all.
What are some of the personal finance rules you live by?
-Mo’ Houses out!