Friday Final Reflection: August 11, 2017
My Simple 5 Point Investment Strategy
Good Morning friends and welcome back to my final reflection of the week here at Budget Boss. This week was Investment Week at Budget Boss and we went over several topics including saving, planning, investment products and vehicles. I think the biggest thing you can take away from Investment Week is that what you are invested in is not as important as how you go about investing. Invest in a good perspective on money. What this means is you have to be a saver and not a spender. That is the most important thing you will ever do in life. As for actual investments, for the average Canadian there will be only a handful of products they deal with. The Tax-Free Savings Account and Registered Retirement Savings Plan are the most common vehicles. Determining your own personal risk tolerance (Investor Personality) will show you what you should be invested in (ie. Mutual Funds, Bonds, Stocks, ETF’s, GIC’s, etc.). It is important to develop a well-rounded investment portfolio based on increasing your net worth. In this post, I will give my 5 point Investment Strategy that anyone can follow. If you are looking for the hot stock tip, move on, this one is all about getting back to basics.
1) Positive Cash Flow is EVERYTHING!!!
There is a reason I mention this as the first point in my 5 point plan. It is the most important thing you can ever do. You MUST spend less money than you make. There are no if’s, and’s or but’s about this. If you run a negative cash flow every month you will fall into the trap of debt and that will zap your ability to invest in anything. How this is accomplished is simple, use a budget. Make your budget your bible on spending. I tell people this all the time: I don’t care if spend every last dollar you have. That is of course if you contribute to your investments, insurance, emergency fund and pay all your bills first. This can only be accomplished with a positive cash flow. Strive to earn more money, stay within your budget and handle your obligations including your future self and you will win at life.
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2) Own a Home
Now I should probably change the name of this tip because I don’t necessarily believe home ownership is absolutely vital to financial freedom. I think it can be a solid part of any financial plan but isn’t 100% necessary. Why home ownership is important is because owning a home allows for substantial savings in housing costs once you are retired. You have to anticipate your monthly income will more than likely be a lot smaller once retired and therefore you have to cut back expenses. Most people’s biggest expense is housing. Housing can also be eliminated as a cost if you own your home. That is why I think you should own where you live. Now you don’t have to own your home, but then you must save more for retirement. I know many retirees that rent but many of them are on a pension. Sadly the pension days are long gone so planning is very important. I also think rental properties are a great source of income during working years and even a boost in retirement savings if sold at the appropriate time. The key is to understand what your budget will be during retirement and possibly have a great asset that appreciates in value over time.
3) Tax-Free Savings Account (TFSA)
I have said it before many, many, many, many times: Every Canadian should have a TFSA. For my brothers and sisters, in the USA it is called a Roth IRA. For my friends in the UK, it is the Individual Savings Account or ISA. This account to me is the most beautiful thing I have ever seen. Money put in grows over time tax-free and then when it is withdrawn you pay no tax either. It makes me weak in the knees. The limit for yearly contributions for the TFSA is $5,500 a year. I believe everyone can and should be able to make this contribution. Now you might not be able to afford that amount right away but it should be your goal to do so. $5,500 a year is $211 every 2 weeks. That is $105.50 every week. That is roughly $15 every day to be saved. I know for a fact many people are blowing that amount daily on useless crap. The question is: Would you rather have Starbucks and Subway for lunch every day or have $1,480,217.86 in retirement? ($211 bi-weekly for 40 years getting 8% return) I think the answer is simple, use step one to get a positive cash flow so you can make these contributions. Start now, I just showed you why so no more excuses.
4) Get all the free money you can get!!
Where is this free money you speak of Mr. Budget Boss? Free money is all around you if you seek it out. If you are in school get any scholarship or bursary you can. If you have children use grants within a Registered Education Savings Plan (RESP) to enhance your savings. Once you get out of school seek a job with contribution matching in your retirement plan. If you qualify, get the Disability Tax Credit (DTC) and then start contributing to a Registered Disability Savings Plan (RDSP). Over 1000 different conditions qualify so check it out. The government will give you up to 70K in free money towards your savings so it is definitely worthwhile. If you have a Registered Retirement Savings plan (RRSP), aim to max it out so you get the maximum tax return yearly and that can be used for more savings or even fun things like a vacation. If you parents plan on giving you an inheritance make sure you are saving on your own first and are debt-free. Earn that inheritance instead of using it for debts. I’m sure they would want you to use it for your future and not to pay off Mr. VISA. When you plan, do your research and work your butt off these opportunities will arise. When you do nothing that’s just what you get, nothing.
5) Be strong, be consistent and constantly be growing
As your life goes on you will settle into knowing what you need to live the lifestyle you wish to have. Once you accomplish this and earn the amount to obtain this, don’t let your expenses rise to meet your income. What more could you possibly need? So many people fall into the trap of letting their income dictate their lifestyle. The truly successful people have found a level that makes them comfortable and then the rest is for saving and giving back. Doing this could mean early retirement or a lavish retirement. Imagine taking trips every year starting at age 55 instead of bridge every day at the senior center starting at age 70. When you strive for more it is to enhance your goals. You should never have a goal of acquiring more crap. Your goal should be the accumulation of wealth and that will allow you and the ones you love to have everything they need in life. Consistent contributions that increase yearly will accomplish this. Never let your lifestyle outpace your income.
With this 5 point plan everything in your finances will be dramatically simpler. The goals will be clearer and the objectives will be met weekly, monthly, yearly. This is about as simple as it gets and can literally be done by everyone. Small steps can be taken daily to get this done. It isn’t rocket science and it isn’t impossible. It’s about being dedicated, vigilant, strong and determined. It all adds up and doing these things should be your focus. We will all be a millionaire if our lifetimes, the question is what will you do with your million?
Thanks for reading my final reflection on Investment Week here at Budget Boss. Don’t forget to tune in at noon for my Live Broadcast with sixfive.co from Innovation Works in Downtown London, Ontario. If you want to begin working on your 5 point plan let me know and I would be glad to help you get started, the coffee is on me!! Have a great weekend!!
“Predicting rain doesn’t count…. Building arks does.” – Warren Buffett
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Joseph James Francis is a Financial Advisor. You can find him on various social media platforms and at www.budgetboss.ca
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