Financial Friday #67: The Yellow Brick Road to a Secure Financial Future
The Yellow Brick Road to a Secure Financial Future
(3-minute read)
Plenty of books have been written about "securing your financial future" and some of them like Rich Dad, Poor Dad or Millionaire Teacher are well worth a read. However, if you want to get started right now, here is some stripped-down advice to get you pointed in the right direction.
1. Calculate your net worth. Take the market value of all your assets including houses, investments, vehicles, cash savings, and subtract what you owe on your mortgage, credit cards, LOC, vehicle loans, etc. Focus on the big-ticket items.... you can ignore the gift card from Tim's!
Whatever is left over, whether positive or negative, is your net worth. This is the starting point and yardstick for measuring your financial journey. Going forward, you will need to revisit this calculation on a regular basis to determine your progress.
2. Pay yourself first - and save it! You should be aiming to save at least 10% of your after-tax salary. Every payday, that 10% has to get from your daily chequing account into a high-interest savings account… like clockwork; no ifs, ands or buts! How to invest that money is another lesson, for now, just put it aside! To avoid forgetting and/or temptation, make sure to set up an automatic transfer in your online banking.
If you are struggling to meet the 10% goal, you need to list up your monthly expenses and find some low-hanging fruit you can cut and divert into savings. Dining out, travel, phone/internet/cable plans and gym memberships can add up quickly and are good areas to find some savings.
3. Understand where the majority of your money is going. The top two overspends are housing and transportation. The cost of your car is not the monthly payment! You must include the insurance, gas and repairs - it shouldn’t eat up much more than 10% of your after-tax income. Do the same calculation with your housing and make sure to include the mortgage, repairs, utilities and property tax. Aim for 30% of after-tax income, not whatever the bank or stress-test says you can afford.
You can always downgrade your car, but a change in housing is more involved. We recommend doing the calculation and at least get a benchmark of your current situation. You may be able to save on utilities, repairs or home improvements, or generate some extra income to get closer to the 30% target.
If you want more detail on the above principles and how to create a roadmap for your financial future, tune into next week's webinar featuring Enriched Academy Co-Founder Jay Seabrook.
Resources
Toronto developers $1B housing buy irks new home buyers
With house prices already in the stratosphere, Core Developments will be throwing their formidable resources into the bidding wars for single-family homes in places like Barrie, Hamilton, Guelph, Peterborough and London. Is it corporate profiteering at the expense of new home buyers, or a welcome
addition to the rental market pool?
Real estate or stocks - which investment is right for you?
House prices and financial markets are both at record highs, so investors have had it good - but what's next? Which one is the smart money going to for 2021 and beyond, and what factors go into the decision-making process? A thought provoking look with a well-balanced perspective.
House prices fall, but did anyone notice?
Average Canadian house prices fell from March to May on "offer fatigue" and a cooling Ontario market, but the drop from "scorching" to merely "hot" offers little relief for buyers with prices looking to remain elevated for the foreseeable future.
Do you know how much money you spent last month?
A recent survey by the Penny Hoarder found that budgeting is not part of the daily routine for about half of us, with the other half relying on various apps, spreadsheets and even cash envelopes to keep their spending in check. If you are an on-again, off-again budgeter, this article is for you.
Knowing the rules best bet for avoiding costly TFSA blunders
This 3-minute read give some rather chilling examples of what the CRA views as a "reasonable error" when it comes to forgiving penalties if you run afoul of the TFSA contribution or withdrawal rules.