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:
- Pay yourself first
- 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:
- Refinance your mortgage if your rate is more than two percent higher than current rates, and you have less than two years until maturity.
- 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.
- Consider a secured line of credit to replace your mortgage
Education:
- Consider opening a registered education savings plan (529 Plan). Check with your state regarding the details, fees, early withdrawal punishments, and yields.
Investing:
- 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.
- Diversify – ’nuff said.
- 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.
- Focus on the NET return – which means paying attention to taxes and broker fees.
Retirement:
- Be more cautious in your investment strategy as you approach retirement age.
- Estimate how much cash you’ll need each year to sustain your standard of living when you reach retirement.
- 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)
- 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.