Financial Books are all the Same
Go to your local bookstore or library and you will find shelves upon shelves of books on the topic of money. Whether it’s how to save, how to invest, how to become rich, what you should be doing with your money – all of these books have the same reoccurring themes. This article is going to stray from the norm, and give you some basic tips on how to save money, and what you should be doing with your savings. It will be different in that it will be brutally honest – don’t read on, if you don’t like the truth.
1. Save Money – Of course, this is easier said than done. How many of us actually save? Not many…and the ones who do, don’t save much. People have debts to pay, nevermind having extra cash left over to invest or simply put in the bank. Although saving money may not be easy at first, it can become second nature if done consistently. Most books will tell you to take a certain percentage off every paycheck (say, 10%) and put that money into a savings account, mutual fund, or other investment device. This is the simplest way of saving money. Of course, it’s not the most convenient either. Rather than defining exactly how much money you should be saving every week, why not simply set monthly savings goals, and try to reach them? Instead of saying, “I will put $100 from every paycheck toward my investments”, say, “I want to have $300 to invest by the end of the month.” This way, if you reach your goal, or even surpass it, you will feel a sense of accomplishment. This method also allows for income to flow from other and different directions (such as garage sales, selling your own paintings, etc.) and still be counted as a part of your savings.
2. Invest the Money you Save – Many people are ignorant when it comes to investing. They think that by saving money, they will be set. This is what banks want you to believe, as they’re the ones pushing useless savings accounts that pay less than 1% annually (more like 0.3% currently). This setup works great for them – they’ll take your money, pay you pennies each month for letting them store it, and then lend your money out to somebody else at a rate of at least 5%. Aren’t banks great? You can choose other places to park your money involving the same amount of risk as a simple savings account: money market funds, GIC’s, and Savings Bonds. These investment vehicles will earn you more interest than savings accounts, but your money is less liquid – it takes time (and sometimes fees) to cash your money market funds, and by cashing your GIC’s early, you will incur “early redemption fees”. If you’re tolerant of risk, try the stock market, corporate bonds, or better performing mutual funds – in the long run (even with bear markets), these perform much better than any GIC…in fact, you can expect to make at least 10% annually, rather than less than 1% (which by the way, doesn’t even cover inflation, which is around 2.5% ).
3. Keep an Eye on Your Money – Don’t ever forget that once you invest your money, you’re not out of the woods. It’s important to see how your investments are doing, and change money allocation, funds, stocks, etc. if need be. If you invested in Nortel Networks (NT-T on the TSX) a few years ago, and watched it shoot up to over $120.00, but didn’t get out before it fell to $0.67, it’s nobody’s fault but your own. You must monitor your investments, and the more risky something is, the more you need to watch it. Yes, the markets do eventually correct themselves, but stocks like Nortel, and even some mutual funds, never recover completely.
Remember, you earned your money, and you’re the one who needs to make it grow. It really doesn’t take a lot of time to monitor your finances…and why wouldn’t you want to? The only people interested in your money are ones who want some of it. If you want to be financially free and independent by a certain point, you should be able to make your hard earned money work for you. I will finish by saying this: it takes a lot less time and effort to monitor a relatively safe stock that increases in value by 10% in one year, where you have $10 000 invested, than work for a week or two and make that same thousand dollars.
(c) VD
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