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When we asked a cross-section of Canada's leading experts on personal finance what they considered the greatest money tips of all time, we figured we would get a half-dozen or so points that would emphasize worthy but boring topics like compound interest or spousal RRSPs.
We were wrong.
Our experts surprised us by telling us in many different ways that money is a deep and emotional topic. One expert put at the top of his list some advice on choosing the right spouse. Another stressed the importance of selectively ignoring your portfolio. Yet another pointed out that your most important investment is your own carcass.
We stand corrected. After sifting through the scores of points that our experts nominated for consideration, we've gained a much broader appreciation of how our finances and our lives intersect. And after much discussion, we managed to winnow the collective wisdom of our panel down to 25 points, which we've arranged in five major groups — Starting Points, Family Values, Saving & Spending, Investing, and Finding Advice. At the risk of sounding immodest, we think that these 25 points are the best primer we've seen on the essentials of personal finance.
1. Money is a tool, not a solution
Bruce Cohen, author of The Money Adviser and co-author of The Pension Puzzle, observes that many people have things backward when it comes to their financial planning. They organize their lives to earn money, rather than using money to live the life they want. "The point of the exercise is not to amass a huge mountain of money, but rather to be able to buy the goods and services you find meaningful," he says. And that leads him to observe that…
2. How you spend it is more important than how you invest it
Most people equate brilliant money management with great investing and spectacular stock tips. But that's misleading. Not only is it next to impossible for the average person to outwit the professionals on Bay Street, but all the brilliant investments in the world won't build your wealth by a cent if you keep spending more money than you make.
The only way — we repeat, the only way — to amass money is to live on less than you generate. We're not talking deliberate poverty, mind you — just smart spending. You should live within your means and, ideally, a bit below what you could really afford. Incidentally, this strategy has some wonderful side effects when it comes to your peace of mind. "Knowing you can afford to tell your boss to buzz off creates a certain sense of serenity," says Cohen. And he goes on to note that "financial independence occurs when your savings enable you to meet expenses without having to rely on a regular paycheque. The less you need to live on, the easier — and quicker — it is to become financially independent."
3. Love your job — or leave it
Like Cohen, Jim Otar, a certified financial planner and author, stresses the need for balance in your life. Few things are more conducive to your happiness, he says, than working at a job you truly enjoy. "If you don't love your job, start searching right now," he says. "Don't stop until you find it — be it halfway around the world or in the basement of your own home."
As New Agey as it may sound, Otar's advice reflects some cold, hard number crunching. The numbers show that you would need to build a massive investment portfolio simply to match the income you could receive from even a modestly paid job that you love. Say you can earn $35,000 a year following your bliss—making stained glass, for instance, or working as a fishing guide. That's equivalent to the annual income you could expect to generate from a $700,000 portfolio of stocks and bonds. So if you're working hard at something you hate simply to build a huge retirement portfolio, you may want to consider a simpler option — finding something you love to do and working at it until you drop.
4. Put first things first
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