10 ways to master your money
Regardless if we’re talking personal finances, I believe true success usually comes from taking meaningful action and simply trying again and again.
Lessons don’t always stick unless you make a few missteps along the way.
When it comes to our personal finances, we’d like to think we’ve learned what works (and what doesn’t) over the years. Here are some examples:
Here are some dumbass financial moves to avoid. That post highlights some key mistakes I made as a very young investor by buying mortgage life insurance, investing in penny stocks as a young 20-something, and owning pricey, underperforming mutual funds to my wealth-building detriment. Of course, I’ve learned to avoid all these things and I try to help pay it forward by telling others to avoid these things as much as possible too.
Here are six big retirement mistakes to avoid. I have little doubt this post could be MUCH longer but these six landmines are certainly ones you’ll want to navigate. I think the biggest issue in this list for many aspiring retirees is either poor use of the Tax Free Savings Account (TFSA) or drawing down a RRIF (Registered Retirement Income Fund) too late in life. The lack of understanding for how either account works can lead to one of two poor outcomes:
- You don’t optimize either account such that you don’t get to retire to the life you want or desire, and/or
- You over save money for fear of not having enough only to pay too much taxes as you age.
“Success consists of going from failure to failure without loss of enthusiasm.” – Winston Churchill.
10 ways to master your money
Building upon previous posts, I thought I would share 10 ways you can master your money this year or any year. Read on and let me know your thoughts!
1. Make a plan
What should your financial plan cover? Lots!
Financial plans go far beyond what funds or stocks or bonds to own where – although that’s important stuff too. I’m a huge believer in plans before products.
If you don’t know what your financial plan should cover, check out this killer, comprehensive post here:
As we continue with our financial plan, here are some debt management and wealth-building goals for us:
1. Kill debt to become debt free. In doing so it will provide some significant financial flexibility – income earned will be ours to enjoy. Part-time work will be a major consideration.
2. Continue to generate (retirement) income security. We continue to save and invest for our financial future by striving to maximize contributions to our TFSAs and RRSPs every year. In fact, here is a snapshot from our actual financial independence plan below:
3. Worry less about money. What? That’s a goal? You bet it is. With a modest emergency fund in place – we have money available to us for a few months if we need it. With a strong debt management plan in place, savings that are automatic for investing purposes, and money set aside for when $hit hits the fan per se we pretty much spend as we please from there and have fun with all funds leftover.
2. Track your expenses
Blah, blah, blah right?
The way I see it: you can’t manage what you don’t measure. It’s that simple.
When it comes to personal finances, most of us spend more than we think – a lot more!
So, track your expenses. Diligently. This isn’t a budget per se. Track your expenses and you might be surprised with the results!
Not sure how? Need a free cashflow tracking tool?
Check out and subscribe to Cashflows & Portfolios for a free cashflow tool. By doing so, you’ll realize why cashflow is really king.
If nothing more, even if you know where all your money is going, this work will also identify what you value when you spend your money. See if that spending aligns with your values.
3. Pay yourself first
Arguably the best and most popularized term in personal finance for long-term financial success – because it works.
Heard of the 50/30/20 rule?
Popularized by Harvard bankruptcy expert Elizabeth Warren, she suggests this approach will provide an appropriate level of balance with your money:
- 50% needs include rent/mortgage, groceries, utilities, insurance and other essentials.
- 30% wants may include travel, dinner out, events, festivals, other.
- 20% savings and debt repayments also include emergency funds and retirement savings.
While a decent model we don’t subscribe to Elizabeth’s advice ourselves.
4. Earn more money
Yes, they say ‘mo money comes with potentially ‘mo problems but let’s be honest – it also provides a new world of opportunities. Businesses excel because they make more money over time. In that light, you should consider your household like a business too.
If you’re serious about financial independence sooner than most, you’ll probably need to increase your income over time. Cutting back and extreme frugality can only go so far. What might be some ways to increase your income without leaving your current job? Here are some ideas:
- Start a small side-business – earn income from your hobby or passion.
- Work hard at work – get a deserved promotion.
- Invest in you – further your formal education in a skill or service that’s in demand.
- Sell crap stuff you no longer need.
- Rent out your space, if you can.
- Invest in income-producing stocks or securities.
5. Mind the debt
Debt, just like evil, is also a four-letter word. Watch out for it.
While we still have debt, we’re working diligently to slay the mortgage beast every week. You could argue there is “good debt” and “bad debt” but at the end of the day, owing other people money first long-term is, for the majority of us, a wealth destroyer (not a wealth builder).
- Got a credit card? Pay it off every month.
- Got a mortgage? Make lump sum payments where you can.
- Got a car loan? Bad idea (because you are borrowing money on a depreciating asset…). Pay off that car loan too.
As long as you are doing these things above, one could argue that paying off your mortgage as fast as possible is not essential to financial success.
In fact, here is a detailed post about whether you should invest or pay off your mortgage first.
I have a bias on that.
There is a strong case to be made that in today’s lower interest-rate environment, you’re better off investing inside your registered accounts as much as possible while meeting your debt obligations.
6. Watch the tax
We must all pay our fair share of taxes – such is life – but don’t pay any more than you should!
Here are some pro tips on tax management:
- Take advantage of your RRSP account. Taxes deferred today and tax-deferred growth inside the account going forward. Win-win!
- Learn about available tax credits and deductions. Yes, our tax system is unnecessarily complex but knowing what you might be able to claim/deduct can save you a bundle every tax season.
- Make sure you read up on any pre-retirement tax tips.
- Finally, make sure you name beneficiaries on your RRSP, TFSA and other important accounts so your hard-earned savings are not subjected to unnecessary taxation.
7. Avoid too much house
Buy a house you can afford long-term. Sounds simple. Hard in practice.
Nobody can predict the financial future with any accuracy. Same goes for the real estate market.
Sure, looking at Toronto or Vancouver over the last decade, one could argue it’s like winning the lottery. Folks owning homes in those cities have seen HUGE price appreciation gains. Good on them!
Buy a house first and foremost because it’s a great place to live and care for your family.
8. Invest long term
Burton Malkiel, the famous author of A Random Walk Down Wall Street, once said trying to pick winning (mutual) funds is like running an obstacle course through hell’s kitchen.
To make matters worse for flame-fearing investors, the stock market always appears volatile in the short-term.
When to buy? When to sell? When to stay in cash or gold or bonds?
Then you’ve got the former U.S. Chair of the Federal Reserve saying this dribble: “run for cover”.
This is why you need to take the long road if you want to grow your nest egg.
Here are some simple tips to avoid losing your shirt when the stock market sky seems to be falling:
- Learn to celebrate falling stock prices. It means stocks will be on sale!
- Avoid letting your emotions get the best of you. Make an investment plan and stick with it.
- Don’t get swayed by the talking heads on TV, or Alan Greenspan or anyone else. Be mindful they are working and they also want to put food on the table.
- If you don’t like individual stocks like I do then consider passively managed, low-cost Exchange Traded Funds (ETFs) as the best way to invest. This way, you can achieve market-like returns and avoid major market under performance over time.
- Consider dividend investing if the market noise is too much for you. This way, you can focus on the income your portfolio generates to assist your queasy stomach.
9. Retire on your terms
I’m not a huge fan of the FIRE (Financially Independent, Retire Early) crowd.
Sure, I want to work on my terms sooner than later, but I can’t see myself becoming nor staying “retired” for long. I far prefer my own term: FIWOOT (Financially Independent, Work On Own Terms).
How will your retirement measure up? What’s your game plan?
Some additional tips and what I’m starting to think about:
- Retirement is not a switch. Retirement is not an end. It’s simply a new phase of life.
- Plans change. Plans get derailed. Be flexible and embrace adaptability.
- Retirement is not a financial number. What works for some at age 55 might not work for you at age 75!
10. Pay it forward
Exactly what it means.
Just like the story of a social studies teacher that asks his class to make things better for all, setting in motion of wave of goodness by one particular student to pay it forward, you too can help others.
You don’t need to run a blog. You don’t need to write a book. You don’t need to be an expert. In fact, it’s probably best to remain humble and admit you’re not! Even if you know a bundle about personal finance and investing, by paying it forward I bet you’ll learn some more things too.
Learn the basics, practice them often, share with others what you’ve learned and you’re well on your way to helping others.
As you learn about what works, and what doesn’t for you, pay it forward. Share what you know. Be honest. Be open to different perspectives. Be respectful with your opinions. How you treat others matters…
We all have limited time and resources on this earth. By helping others, we can make the most of it.
10 ways to master your money summary
These 10 tips are not the only ways to master your money but they’re a damn good start.
I hope you enjoyed the post and let me know what I should add over time.