My simple saving and investing rules of thumb

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.

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.
• Use our line of credit only when necessary for major home renovations.
• Save and invest at least 10% of our net income every year.
• Keep a $5,000 (or more) emergency fund.
• Always be on the lookout for ways to cut back on everyday expenses such as heat, hydro and cable bills.
• Avoid carrying any credit card debt in any month.
• Optimize our RRSPs.
• Keep the majority of our RRSPs in indexed products.
• Keep some U.S. dividend-paying stocks in our RRSPs.
• Maximize our TFSAs.
• Use our TFSAs for Canadian dividend-paying stocks.
• 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”.
• If we’re going to own stocks, only own companies that pay dividends.
• Minimize money management fees.
• Put emphasis on building retirement income (cash flow) 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?

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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.