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. Read on to learn about my simple saving and investing rules of thumb you can apply.
- 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. Thanks for reading.
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.