I’ve just finished reading Preet Banerjee’s new book “Stop Over-Thinking Your Money.” I was very impressed with these simple and very practical guidelines to achieving financial success. They aren’t easy, but they can change your life and future financial situation for the better.
Rule #1 – Disaster Proof Your Life: When we are young and healthy we think we’re bullet proof and that disasters are what happens to other folks. We get married, have children, buy a home, and a couple of vehicles. Along the way things can happen. We might die too soon, get sick or disabled and become unable to work, or we could lose our job. The randomness of any of these expensive emergencies is the protection we need for the financial future of our family or business. Insurance can replace lost income if we can’t work, become critically ill, or die too soon.
It’s important to have a “rainy day fund” if we get laid off from work or any other unexpected emergency happens.
Having current wills and powers of attorney in place is also critical, so that someone can step in and make decisions when we aren’t able to.
Rule #2 – Spend less than you earn: This is such a simple, basic rule, but seemingly, many people just don’t get it. You will never build real wealth until you learn to spend less than you make, and if you don’t, disaster is waiting – simple as that! It takes discipline to get started, but once you get into the habit, it can be exciting to have money left over every month, rather than the other way around.
I am always frustrated when clients complain that they can’t save, but refuse to set up a monthly savings plan. Instead they just do last minute RRSP contributions for the tax refund. The only way to start saving is to figure out where all the money’s going, then set up a monthly budget. Once you have determined a surplus, have it automatically deposited into a savings account. It’s called” paying yourself first” rather than planning to save what is left over.
Rule #3 – Aggressively Pay Down High Interest Debt: Don’t carry balances on credit cards at 18% interest or more. It’s better to have a line of credit close to prime that you can roll any unpaid balance into. But don’t be tempted to consolidate high interest debt into a regular mortgage, as it’s all too easy to end up much worse off.
Rule #4 – Always Read the Fine Print on Contracts: Don’t sign any contracts until you fully understand what you’re committing to. If you don’t understand the wording, review it with a lawyer. It’s too late to say “I didn’t understand what I was signing” after you have done so. And never sign contracts that you are being pressured into.
Rule #5 – Delay Consumption: Think about a vehicle for $40,000 that ends up costing you an extra $4,200 in interest over 60 months. I’m sure you can think of a few interesting things you could do or buy with that money if you saved up the money first and paid cash instead of taking out a loan for the vehicle. Or save it for a rainy day, or add a nice chunk of cash to your retirement fund. TFSAs are an excellent tool to save up cash, tax-free.
If you would like to learn more about these simple rules, stop by our office and we will lend you a copy of Preet Banerjee’s book.
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