The following article is a guest post by Barry Choi, a passionate DIY investor with no formal financial training. When not finding more ways to save cash and manage his investments, Barry is a Director for CityTV Toronto. Barry can also be caught daydreaming about his next travel adventure. You can follow him on Twitter @BarryChoi.
After reading last weeks’ interesting post Super Simple Ways to Save More Cash I was excited to find that I already followed 18 out of the 20 tips. Some may find following all of My Own Advisor’s tips a bit much so I present to you; Three Saving Rules I Live By.
Pay Yourself First
I admit it, I’m a budget whore. I know exactly how much I’m spending, and on what. I’ve set up my accounts to auto transfer money as soon as I get paid; so my longer term accounts such as investments, my vacation fund and car maintenance fund are taken care of right away. In addition I set aside an amount for daily things such as groceries, gas, and house supplies. It doesn’t matter if I’m filling up gas, or buying plane tickets, I’m never worried about cash flow.
To take it a step further I Dollar Cost Average in my Registered Retirement Savings Plan (RRSP). Money transferred into my RRSP every month is set up to automatically buy the funds I own. I don’t worry about how the markets are doing or trying to time them. By paying yourself first I think you can take the emotions out of saving and investing.
Spend Less Than you Make
This ties in nicely with the above. By paying myself first, I’ve set myself up to spend less than I make. As far as I’m concerned because all of my savings goals have been met first I can spend what’s left over and not feel guilty about it.
It’s impossible to avoid debt so be smart about what you can actually afford. The first time I asked my bank about mortgages they told me I would be approved for $650K but they stressed it would affordable on a monthly basis. Isn’t that insane?! I was only 27 at the time and they were ready to lend me over half a million dollars based on a low monthly payment?
It doesn’t matter how much money you make, you’re going to go broke if you spend and/or borrow more than you make.
If someone offers you free money, TAKE THAT $HIT!
When I started working I thought I had the whole world figured out. Yeah, I got that wrong 🙂 My employer offered a defined benefit pension plan and I didn’t join it until about 6 years in. I literally left free money on the table by not jumping in right away. Take the time to read about your employee benefits; you might have access to a pension plan, RRSP matching, stock options and even paid continuing education.
Take advantage of reward credit cards; you can claim just about anything including cash back, travel, gas and movie tickets. The key here is you must pay off your balance in full every month. It’s not a reward if you’re paying 19% interest.
If you have children don’t forget that the government will match your Registered Education Savings Plan (RESP) contribution by 20% to a maximum of $500 a year. So if you contribute at least $2500 a year, you’ll be maximizing your free money!
Those are the three saving rules I live by. By sticking to those rules, I spend about the same amount as I did 5 years ago. The better news is, because my income has increased over that time so has my savings, not my spending.
Any savings rules you try and live by? Thanks to My Own Advisor for sharing my thoughts.
Mark: You’re most welcome Barry. Follow Barry’s take on personal finances, blogs he follows and other interesting musings on Twitter @BarryChoi.
Image courtesy: http://sites.mediaplanet.com/how-to-plan-for-retirement
Spend less than what you earn. This is a cardinal rule in financial management. If you do otherwise, you will be deep in debt and it’s hard to get out from this situation. Savings plans are helpful. Why not take it?
Even if you left free money on the table, you did end up paying into it so that’s good. If everyone followed these basic financial rules, there would be no problems with debt and other financial issues (unless it’s an income problem, of course).
For sure Daisy. Thanks for your comment.