According to a recent survey released by the Canadian Payroll Association, 59% of us don’t have enough saved up to pay for next month’s necessities if we suddenly got laid off. If you find yourself living paycheque to paycheque where you are finding it difficult to save because you’re either spending too much, don’t have a financial strategy and/or your investment choices haven’t been doing as well as you’d hoped, here are some tips on how you can keep more of your money.
SAVING
Basic first steps – Before making any decisions about what to do with your money, you have to make sure that you have enough of it on hand.
DO pay yourself first. That’s the most important rule. Take an amount from each paycheque and set up an automatic savings or investment plan. Putting 10% of your gross is a good start but whatever amount, make sure you don’t spread yourself too thin. After awhile, you won’t even notice this amount disappearing.
DO pay off your consumer debt before investing. It’s like earning a return that equals the interest charged on your debt. For instance if you’re carrying a credit card balance of $1,000 with 18% simple annual interest, that’s $180 a year in charges. Pay off that debt and you’ve saved $180. That’s the same as investing $1,000 in something that earns an 18 % return after tax. In fact, if you’re in a 50% tax bracket, you would have to earn 36% to emerge with the same $180 in your pocket.
While your home’s value may have greatly increased, you may also be paying more than necessary on the mortgage.
DO refinance your mortgage if your rate is more than 2% higher than current rates, and you have less than 2 years until maturity. Check with your mortgage holder to determine the penalty for getting out of your deal.
DO consider a variable or floating rate mortgage if you have built up equity in your house and are able to tolerate the risk that your monthly payments will fluctuate. Speak with your mortgage broker to determine if this is an option for you.
Expect ups and downs. Too much risk can hurt your portfolio’s growth rate but so can hiding in ultra-safe investments paying one percent or less. Ideally, your portfolio should be able to keep its head above water during prolonged market downturns and be positioned to grow when the economy and market soar.
DO look at staying invested for the long haul. Don’t chase every fad as studies have shown that it’s long-term discipline that provides above-average returns.
DO diversify. But don’t overdo it. To start, you need the right mix of stocks and bonds. A general rule of thumb is that the percentage of your investment portfolio consisting of fixed-income holdings should equal your age. The thinking is, you become more conservative as you get older.
DO know when to sell. The toughest thing for any investor is to sell. One suggestion is that no holding should make up more than 5-6% of your portfolio.
If you need further information as always feel free to call us at 250 862 1806 or email [email protected]
This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.