Do You Like Money? Would You Like to Keep More of It?

Posted on 10. Jul, 2006 by Jason Guthrie in Saving & Investing

I like money as I’m assuming you do. But what I hate is seeing my bi-weekly paycheck whittled away each day as more and more expenses are paid. To help alleviate this painful process, Reader’s Digest magazine (Canadian version) has followed the story of a couple who was able to change their spending and savings habits so that they were in the position to buy a home in one year instead of three. How did they do it? How can you do it? Well, keep reading…

Saving:

1. Pay yourself first
2. Pay off consumer debt before investing – I’m a HUGE fan of this idea. How much sense does it make to be putting away cash into an investment that is making 12% a year when you’re paying 18% in credit card debt? Let’s say you’re carrying a credit-card balance of $1,000 with 18 percent simple annual interest. That’s $180 a year in charges. Pay off that debt and you’ve saved $180. That’s the same as investing $1,000 in something that earns an 18 percent return after tax.

Mortgages:

3. Refinance your mortgage if your rate is more than two percent higher than current rates, and you have less than two years until maturity.
4. Consider a variable or floating rate mortgage if you have built up equity in your house and are able to tolerate the risk that your monthly payments will fluctuate.
5. Consider a secured line of credit to replace your mortgage

Education:

6. Consider opening a registered education savings plan (529 Plan). Check with your state regarding the details, fees, early withdrawal punishments, and yields.

Investing:

7. Stay invested in the long haul. This is probably the biggest mistake people make when investing. You’re investing for the long-run, so don’t bail when your stock takes a dip. Chances are, it’s only temporary.
8. Diversify – ’nuff said.
9. Know when to sell – and cut your losses. One suggestion is that no holding should make up more than five to six percent of your portfolio. In other words, if you have a $100,000 portfolio, you can have a $5,000 to $6,000 position. If it grows beyond that, sell enough to go back to five to six percent and allow the position to continue to grow.
10. Focus on the NET return – which means paying attention to taxes and broker fees.

Retirement:

11. Be more cautious in your investment strategy as you approach retirement age.
12. Estimate how much cash you’ll need each year to sustain your standard of living when you reach retirement.
13. Start investing for retirement before you even start your first job (i.e. start saving for retirement ASAP – that interest is just free money for getting a head start)
14. Contact a CPA regarding spousal tax savings. If a couple files separately they can often maximize retirement contributions and savings plan contributions that wouldn’t be allowed if the two incomes were combined.

    Tags: Investing