To quote the late Dr. W. Edwards Deming, a world famous author and quality management guru:
“If you can’t describe what you are doing as a process, you don’t know what you are doing.”
In my work, Dr. Deming’s wisdom is referred to frequently. I think his wisdom also applies quite nicely to an investment strategy. Once that’s defined it’s much easier to execute on. I live processes and systems stuff in the workplace every day and for whatever reason, it took me until my 30s to adopt this quality management philosophy to our personal finances. Now that I have, having our investment strategy defined a number of other things have fallen into place:
- We have savings goals related to our financial plan,
- We can monitor our financial plan for progress, and
- We take the emotions out of investing.
We are by no stretch perfect savers, we certainly splurge yet we pay ourselves first, live within our means and invest in a manner that’s designed to meet our future financial obligations.
In support of Dr. Deming’s wisdom I thought I’d share some other saving and investing truths to abide by. Following these things won’t guarantee financial freedom but they will certainly put the odds of achieving it in your favour.
Here are 10 saving and investing truths:
- Get out of mortgage debt and stay out of mortgage debt.
- Avoid carrying any credit card debt, ever.
- Have a small emergency fund for the ‘what if’s’ in life.
- Minimize money management fees and expenses as much as possible for as long as possible.
- Your savings rate is (and will always be) one of the most important keys to financial success.
- On the subject of savings, save 10% of your net income every year and keep striving to save more as your income grows over your career.
- Maximize registered accounts first (like Tax Free Savings Accounts (TFSAs), Registered Retirement Savings Plans (RRSPs), Registered Education Savings Plans (RESPs)) before investing in non-registered accounts.
- Diversify your investments across companies and countries as much as possible.
- Ignore economic forecasts, treat them as entertainment.
- To help take the emotion out of investing, reinvest all dividends and distributions whenever possible. Money that makes money will make more money.
What are your saving and investing truths to behold?