Blatantly ripping off Canadian Capitalist's list of his five favourite financial secrets, I thought I'd bang out my Top 5 for you all, in no particular order.
1 -- Live below your means
I know it can be hard to pay off all your bills every month, let alone put aside a little extra for a rainy day. But I'm constantly amazed by the gains that can be had from living just a little bit below your means. Whether it's $5 a day, or $20 a week or whatever, the benefits of seeing that little buffer zone in one's chequing account and not immediately blowing it are immeasurable. I'm lucky enough right now that my situation allows me to put aside something in the neighbourhood of a quarter of my paycheque into a savings account. I know that won't always be the case as things like mortgages and kids come along, but for now, I'm socking it away while the socking's good. I don't advocate denying yourself the things you truly enjoy in life. But you'll be amazed how culling the meaningless expenses from your life can add up to big financial gains without hitting your standard of living. Try spending 10% less this month than you did last month and see how fast it adds up.
2 -- Don't pay needless fees
This one is a biggie for me. I'm quite happy to spend money on the things that are truly important to me, and I don't even make myself feel guilty for doing so when I do. But if there's one thing that I derive absolutely no pleasure from whatsoever it's the dozens of bank fees/convenience charges/system access fees/ticket surcharges that nickel and dime us all to death every month. I had a conversation with a friend recently about bank fees, the gist of which was -- in today's day and age there is no reason to pay bank fees. None. Whether it's PC Financial, ING Direct or another fringe player, get to know them, and don't take your current bank's B.S. a day longer than necessary. Use them. Love them. Another friend somehow managed to spend an amazing $47 in on month on bank fees one month a few years ago, I surmised when we looked at one of his bank statements. That's astounding! $47! Remember that the next time you're convincing yourself, drunk in a bar, that the $2 service charge to use the white label ATM in the lobby is somehow 'worth it.'
3 -- Make it automatic
As per item #1, the easiest way to make sure you'll have a little left over at the end of the month, is to make it automatic. Don't put whatever you have left over at the end of the month into savings, because we both know there won't be any left over. At least, there certainly wasn't when I tried to do it that way. Move the money you put into savings up in your priority list by setting up an automatic withdrawal. I get paid every Thursday morning, at midnight. At 12:01 a.m., my savings account gets a deposit out of that, forcing me to live off the rest. Obviously, I dip into it from time to time as circumstances require it. But just by putting in in there at step 1 (as opposed to step 17) I make it much more likely to stay there.
4 -- Don't always follow the herd
Sometimes, the herd is going in the right direction. But not always. There's a word for the act of going against the grain in investing circles -- it's known as being a contrarian. Most of the world's greatest investors built their wealth by doing precisely what everyone else isn't doing. Sometimes, that means closing your eyes and buying when everyone else is selling. Even outside any investment decisions, stop and reflect on why, exactly, you're doing the things you do, or buying the things you buy. Use your head: "Why am I doing this? What benefit am I getting out of this? Could I be better off doing something else?"
5 -- Keep your goals in mind
A little more nebulous, but still just as helpful, I've found. It isn't always the easy thing to deny yourself some treat, or stick to a plan. One thing I've found works quite well is to visualize what exactly you're working for. You're a lot more likely to stick to your savings plan when you can imagine the car you're saving for, or the dream home you want, than just blindly saving every cent, without ever having a concept of a reward for it. Any time I'm tempted to go off the rails, I think of the things that really matter to me, and how inconsequential everyday sacrifices (like bringing coffee from home, for example) gets me closer to them.
Those are my 5. What are yours?
Friday, June 06, 2008