Creative thinking inspires ideas. Ideas inspire change.” – Barbara Januszkiewicz
January’s edition of “MoneySense” magazine featured a section dedicated to getting into shape financially, which offered 21 suggestions for improving your financial fitness levels. While some were tried and tested strategies such as tracking your spending, renegotiating interest rates and ditching subscriptions to things you’re not actually using, other suggestions were more unusual. For this week’s post, I thought I’d share seven money tips that gave me food for thought.
Return to the Priority Pyramid
Created by Moneysense contributing editor, Bruce Sellery, the Priority Pyramid helps you make sure that the basics are taken care of before you start focussing your energy on loftier money goals. The pyramid has six levels and the idea is that by working through each one, you create a more stable financial situation for yourself. Sellery’s six levels are:
- Cash Flow: make sure that your income exceeds your expenses
- Debt: eliminate consumer debt to save yourself from hefty interest payments
- Savings: save at least 10% of your gross earnings.
- Taxes: take full advantage of tax savings vehicles such as RRSPs, TFSAs, RESPs, RDSPs etc.
- Investment Performance: make sure that your investments are matching the performance of their benchmark over time
- Optimize Returns: investigate other investment strategies you could use to meet (or exceed) your goals? Examples include, investing in real estate or specific sectors.
Related article: Financial planning: A road map to success
Make a Charitable Giving Plan
Many of us give to charity on a regular basis but I really like the idea of making a plan for giving, in terms of how much you want to commit on an annual basis and also deciding which particular causes you want to make part of your regular giving. I also liked the suggestion to give 50% of your annual donation amount to charities “no-one asked you to give to”. This means groups that need funds but lack the advertising budget to ask for them such as shelters, school groups, grass-roots organizations etc. If you’re not sure which causes to support, then www.charityfocus.ca is a good place to start; it provides a description of every charity in Canada along with key revenue and spending figures.
Related article: Develop a charitable giving strategy
Set a Money Date
Money is a leading cause of conflict in relationships and credited with being a significant factor in many divorces so, while we might not like talking about money, if we can find a way to do it without it turning into a full-scale fight then we’re likely to significantly improve our relationship in the process. A money date is an opportunity to talk about money in a neutral environment, set some goals and review your spending (without fighting or allocating blame). A good starting point is for each partner to identify which money situation concerns them the most, that’s likely to provoke some good discussion and lead to some positive goals that you can work on together.
Related article: Couples need to talk about money
Ask a Key Question Before Spending Money
In an age of easy credit and impulse purchases it’s easy to get carried away with our spending. However, asking one key question might help you spend more consciously and keep more money in your pocket: “what else could I buy if I spent only half as much money on this?” It’s clever because it appeals to our desire to spend while encouraging us to consider spending less and it also makes the decision to spend less a choice rather than a restriction which is a lot more effective.
Related article: Develop a disciplined spending plan
Make a Plan for the Equity in Your Home
Many people look forward to a time when they’re mortgage free but not as many people make a plan for what they will do with the equity that they’ve worked so hard to accumulate. While some people might plan to stay in their home for as long as possible or pass on the value as an inheritance, others might prefer to sell their home soon after retirement and use the equity as a means to fund their retirement lifestyle. However you intend to use your home equity, it makes sense to have a plan.
Cash Out Your Emergency Fund
This one unsettled me and I’m not sure if I agree with it but it definitely made me think so that’s why I thought I’d share it! The idea is that, if you’re in a financially stable household and you have several month’s worth of living expenses saved in a cash account for emergencies then you’re better off either investing that money or paying down your mortgage and opening a line of credit that you can draw on in an emergency. I can see the mathematical sense in taking money that’s generating a tiny amount of interest and either applying it to a higher interest debt or investing it somewhere that’s likely to generate a higher rate of return. However, I’m wary of relying on credit as an emergency fund because borrowing money from a lender is always more expensive than borrowing from yourself and also, taking on debt when you’re in a difficult financial situation, can make a stressful time even more stressful. I’d be interested to hear your perspectives on this one…
Invest in a Vacation
There’s something to be said for investing in experiences as well as tangible assets. While I’m not advocating trading financial independence for a lifetime of adventures, it is just as important to strike a balance between saving and spending as it is to balance out work and play. All too often we hear stories of people who worked, saved and sacrificed through their working lives only to be struck with illness or death before they could enjoy the fruits of their labours. On the other end of the scale, you find the people who justified their excesses with “life is short, I could get hit by a bus tomorrow” only to find themselves, decades later, healthily entering their retirement years with little or no savings.
Related article: Can money buy happiness?
For me, certain experiences such as weekends away or trips home to England are integrated into my spending plan in the same way as other bills. Others, such as the dream trip to Hawaii we took last year and the trip to Machu Picchu that’s on our bucket list for 2018, become part of a larger savings goal. One thing I know for sure is that it doesn’t take big money to create great memories; it just takes a clear intention and a willingness to create the opportunity to make that intention a reality.
As I mentioned earlier, some of these suggestions inspired me, some of them made me think and some just reinforced ideas I’ve already incorporated into my financial life. I hope they gave you food for thought too!