Something I've done since my kids were young is talk about finances. For November, which was Financial Literacy Month, I shared a few of the money tips I've provided to them—and some of my clients as well—over the years for understanding and managing their money.
Money Tip #1: You cash flow your lifestyle from your Net Income, not your Gross Income.
What's left after the bills, savings, and debts are paid, is what you actually have to spend on your lifestyle.
Money Tip #2: You only save money at a sale if you buy something that you actually need.
It’s as simple as that!
Money Tip #3: Never underestimate the importance of Emergency Money.
I recommend a minimum of six months worth of mortgage/heat/taxes. Preferably 10 months if you can.
I know that this is a hard point for a lot of people, underscoring the importance of doing it. The goal is here to start making an emergency fund, even if it's only a small contribution to start.
Money Tip #4: There’s a reason they say, "Cash is King."
This point builds off my last point in that having cash—savings, paper money—provides you with the immediate funds to cover your spending needs. There are other meanings for this in business and investing too, but for your personal use, having cash is going to allow you to live your day-to-day without much interruption.
Money Tip #5: If you can, pay an extra $100/month on your mortgage above the regular payment.
How you decide to spend your gross income at the end of the day depends on your financial goals. However, if you want to pay down your mortgage faster, putting down an extra $100/month makes a huge difference in the long term. This $100 would go directly to your principal, shortening your amortization and reducing your interest costs.
Money Tip #6: The best time to start investing was yesterday, but today is good as well.
Just don’t keep standing on the sidelines trying to time the markets.
How do you build your assets and support your financial plans including retirement? Investing. Of course, there are many strategies you can undertake, for example buying a home, entering the stock market, etc. so make sure to reach out to your trusted advisors for guidance.
Money Tip #7: Credit cards serve a function, they are not to be floating a lifestyle.
This is where I see a lot of people get into trouble. Credit cards are great tools when managed appropriately. But interest charges can climb fast if you aren't paying off your credit regularly. Try to spend only what you can pay off each month and remember, you are paying for the use of the money. That money isn't actually yours.
Money Tip #8: Home Equity Lines of Credits are one of the best mortgage products in the marketplace.
HELOCs are a great tool to take advantage of your home's equity and grow your wealth, in a number of different ways. Remember, your home is an investment strategy in itself, so make sure you're looking at all the options!
Money Tip #9: If you’re an investor, understand the importance of the Rule of 72.
If you are already investing or just getting started, make sure you understand the Rule of 72. This is a simplified formula that calculates how long it'll take for an investment to double in value, based on its rate of return. For example, if your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double.
The Rule of 72 is incredibly powerful and shows how quickly you can actually grow your money.
Money Tip #10: Open up a Tax Free Savings Account (TFSA) and use it to invest. Nothing better than tax-free growth!
If you haven't opened a TFSA already, now is the time. If you aren't ready to invest, you can also use it for your Emergency Fund or other savings. The key is here, use the tools available to take advantage of tax benefits and grow your money.
Bonus Money Tip! If your employer has a Pension Plan where they will match your investments, then maximize your contributions as you get 100% rate of return once the funds vest (become fully accessible).
Again, take advantage of all the tools available to you to grow your money.