Today’s post is a guest post from Barry Choi, a DIY investor who, when not busy working as a Director for CityNews Toronto, is passionate about all things personal finance. You can follow Barry on Twitter @BarryChoi.
The New Year is a great time to look at your finances and think about what goals you may have for the year ahead. Arriving just in time to do just that is Preet Banerjee’s book Stop Over-Thinking Your Money! The Five Simple Rules of Financial Success. Full disclosure, I have appeared on Preet’s podcast and I consider him to be a personal friend.
When it comes to personal finance it’s easy for many of us to get lost in translation but don’t worry about that when you read Stop Over-Thinking Your Money! I work in a TV newsroom and I read way too many press releases that are boring and filled with hard to understand jargon. TV folks are trained to tell stories as if we’re talking one-on-one with our viewers, a difficult skill to master, and Preet does an excellent job keeping us in the conversation.
Beyond Preet’s five rules his chapter on Investing Basics was a highlight for me. You see, I was taught how to save from a young age; I paid my bills on time and always spent less than I made. There was always some money leftover and I wanted to invest it so I did what all parents tell their kids to do, I opened an RRSP. I went to the bank and just bought whatever mutual funds they recommended for the account. I had no idea what they were talking about, nor did I understand the terms they were throwing out at me. I lacked basic financial knowledge. Preet takes care of that for us in Stop Over-Thinking Your Money! where he discusses risk and return, diversification, stocks vs. bonds vs. cash, asset allocation, rebalancing, time horizons, active vs. passive management, management expense ratio, deferred sales charges and more. If someone had presented this book to me when I first started thinking about investing it would probably have saved me a lot of time and headaches and probably a bunch of money as well.
Let’s take a look at Preet’s five simple rules and what I liked about them:
Disaster-Proof Your Life: It’s easy for us to overlook our insurance needs but Preet reminds us that life is unpredictable and we need to plan for the unplanned. Death, job loss, health concerns, disability; anything can happen before we retire so it’s vital to make sure we have the right insurance coverage. There’s a break down in the book about the different forms of insurance and an explanation on how to figure out how much coverage we might need. He even has a few tips on how to save on insurance.
To be honest as I currently have no dependents and no mortgage, I never really thought too much about insurance. After reading Preet’s book though, I checked my benefits at work to see if I had enough coverage. There’s more to insurance than I realized and now I feel much more comfortable with the topic.
Spend Less Than You Earn: We’ve all heard this rule before, it’s even one of my three savings rules I live by. Preet tells us “If you don’t run a surplus, you won’t ever have to worry about what to put in your investment portfolio.” Too often we worry about our investments but simply having good savings habits is where we all need to start. If you’re new to personal finance, tracking your spending and making a budget is always the first step. Preet recommends using Kerry Taylor’s Financial Planning Series: How to Make a Budget for spreadsheet templates.
Aggressively Pay Down High-Interest Debt: This is pretty straightforward and a standard plan of attack is given. What I did enjoy though is the hard numbers given when it comes to how much extra we’re paying in interest when we finance our purchases. You can check out Preet’s outstanding TEDx Talk now if you want to get more details. It’s definitely worth watching and it’s only 14 minutes in length.
Read The Fine Print: I’m totally guilty of not reading the fine print on contracts. It’s a good reminder that once we’ve signed we’re contractually obligated to the terms and conditions on the page so make darn sure you know what you’re getting into.
Delay Consumption: There are a couple of fun topics with this rule but I could relate to Preet’s take on discipline and delaying gratification. For a personal example, my wife and I knew that one day we would buy a car so we started saving for it. After we saved enough we still decided to hold off as there was no pressing need for it at the time. We could both take public transportation to work easily and we knew that by delaying the purchase we were also saving on gas, insurance, and maintenance. When we finally needed the car we didn’t hesitate to buy it, but in the process we saved a good chunk of money.
Stop Over-Thinking Your Money! The Five Simple Rules of Financial Success is a great read that I thoroughly enjoyed. It appeals to beginners who are looking for advice to start their financial journey and it also serves up some straight talk reminders for those already on their financial paths. Stop Over-Thinking Your Money! is on sale in stores for just $18. You can save $5 by ordering it online.
Thanks to Mark for another post on his site and sharing the praises of Preet’s book that is sure to help many Canadians save more and do more without breaking a sweat.