To quote the late, great Dr. W. Edwards Deming, arguably the world’s most famous quality management consultant, “If you can’t describe what you are doing as a process, you don’t know what you are doing.” What a great quote, because there is so much truth to it.
I wouldn’t say my following saving and investing rules of thumb are a process but I do consider them excellent inputs for most financial decisions around our house. In my recent 7 Links Project post, I told you I didn’t think I had a “beautiful” post but I must say these savings and investing rules work “pretty” well for us. Check them out!
- Continually reduce our mortgage debt by using prepayment privileges every month.
- Use our line of credit only when necessary for major home renovations or emergencies.
- Save and invest at least 10% of our net income every year.
- Hold a percentage of bonds that closely matches our age.
- Have an emergency fund.
- Always be on the lookout for ways to cut back on everyday expenses.
- Avoid carrying any credit card debt in any month.
- Optimize our RRSPs.
- Keep the majority of our RRSPs indexed.
- Keep some U.S. dividend-paying stocks in our RRSPs.
- Maximize our TFSAs.
- Keep some Canadian dividend-paying stocks in our TFSAs.
- Don’t invest in anything we can’t explain to a 10-year-old.
- Always keep taxes and inflation top of mind when making any investment decision.
- Reinvest all dividends and distributions whenever possible.
- Avoid investing in any “hot stocks”.
- Never own a mutual fund again.
- Only own companies that pay dividends.
- Minimize money management fees.
- Buy more bonds when equities are priced high.
- Buy more equities when bonds are priced high.
- Put emphasis on builing retirement income rather than portfolio value.
- Remember the stock market is unpredictable in the short-term.
- Remember the stock market is predictable in the long-term.
- It’s OK to splurge once in a while.
Dr. Deming told us all great managers understand where their performance comes from. They exploit the power of process to understand market trends to be proactive instead of reactive. As a co-manager of our household finances we’re trying to do the same.
What about you?
What are your saving and investing rules of thumb?
Did you know?
There is no widely-accepted singular origin for the phrase “rule of thumb”?
Most experts agree the phrase originiated from using the thumb for various types of measurements. One potential origin: plants need a moderate depth to seed properly; the depth can sometimes be estimated using the thumb. Another potential origin: alignment of an object can be achieved by holding the thumb in one’s eye-line. The mostly likely origin: wood workers who used the width of their thumbs rather than rulers for measuring things; cementing its modern use as standard. In Dutch, thumb (duim) means inch.