This article is simple and I have added my own experiences to help guide your retirement goals. Everyone is different so take what tips may benefit you and adopt it in your life.
1. Don’t waste and buy things that you don’t need in life. This is an important lesson especially if you are young. So think about this. Ex: I just bought a brand new 2019 model Honda Civic. Total waste of money. Same car can be purchased with 40000kms 3 to 4 years later at nearly 50% the price. So its important to think about these choices. Don’t do it because your everybody else does it. Think hard about financial choices.
Note: Any car you buy, be sure not to buy the newest redesigned/latest model. Just like software, anything new, the first version is usually full of bugs so quick example, buying a brand new developed model of Honda Civic 2007 is not good. You will find that new redesigned engine models tend to have the most problems in its early couple of years. They continue to fix them each year and make improvements so be sure to buy the car from at least couple of years past its original redesign of the engine and other components. So in the above example, consider buying Honda Civic 2009 or 2010 etc… where common problems are fixed in later models.
2. Every little choice or big choice will add up to money long term. So think long term savings. Example, For your bank account you might be paying $3.50 per month as your base account cost fee and you have lets say bank accounts in 3 different banks. Each of them will charge similar fees. So for each month you are paying $3.50 * 3=$10.5 just for 3 bank accounts for one week so for 52 weeks you are paying $525 and if you plan to retire by 65 and never look at this then it will add up to a lot of money. So consider no fee bank account. Even if you pay these fees for 10 years then that’s $5250 you just saved. So yes be cheap and think long term. Heck if you think that’s cheap then give that money to someone poor but make the change. Donate some cash to someone in need. So either save $5250 in 10 years or do charity for 10 years. Both feels great. Honestly money you donate will always come back to you in many positive ways. Just my thought and experience.
3. Cancel TV cable and get unlimited internet. Download a streaming software like Kodi that is free. Minimum$35 bucks per month which could save you $4000 over 10 years. If this money was invested it could have been $8000. So little things can add up. So think about all your expenses where you can save. With unlimited internet you can find so many channels streaming online 24 hours a day. Plus YouTube and other streaming service providers have many great entertainment options to watch.
4. Consider shopping at stores where they do price matching. This is a great way to save up big. On average I usually save at least $5 to $15 each week by price matching. So you could save between $260 to $800 yearly. Another tip for shopping. Consider shopping Thursdays so that you can use the flyer prices for the current week and the upcoming week. Most shopping apps will list best prices for both weeks as the new week is starting to flip over the next day so they will show up on your searches. Consider stocking up on items that are on sale which you will commonly use for the year. Also consider shopping on black Friday and boxing day sales. There are also online options where one can shop for items with lower price like ebay and amazon.
5. With so many mobiles options consider getting rid of your landline. Save at least $20 per month and use your cell phone for all phone requirements. This will save you $240 per year and $2400 in 10 years.
6. Consider ETFs over stocks. Don’t get into stock unless you are certain the company you are investing in is in solid financial situation. If you decide to go this route be sure to look at companies with large market caps. Now, EFT investments are very similar to mutual funds but they don’t charge the large 2.5% managements fees etc….You can purchase EFTs from BMO who has some solid returns. Looks at ETFs that are focus on solid Canadian business like Canadian Banks and Canadian Large Cap companies. Also pick ETF funds where they don’t have one single company taking up large portions of the fund value. Looks for the history of the fund and see what the average annual return rate was for the past 10 years. It should have at a minimum return of 7.2% annual return rate. If it does then your money will double in 10 years. That should be your goal.
7. Consider Mutual funds over stocks. Apply the following rules.
A. Check the 10 year history and look at the annual rate of return.
B. Look and see if the manager on the fund has changed since the start of the fund and last 10 years. Call the company and find out.
C. Check how it has performed compared to TSX index.
D. Look at how many %(percent) the fund had gone down compared to TSX. Also look at how much it went down in 2008 when market crashed hard. You want to pick fund that doesn’t have high downside. Try to minimize the damage when things get really bad when market goes down.
E. Pick funds that are more focused on Canada. Not just for national pride but Canada has a strong banking system in place so business who borrow money from banks tend to be those which the banks have screened and done proper homework on.
F. Don’t pick funds that might have high returns and only has low number of companies listed in the fund. Example, Tech Fund with Apple(25%), Oracle(15%), Cisco(20%), Google(20%), Dell(20%). This would have a real high risk if Apple or Google business got hit hard by competition. The more companies in the fund the better it is and make sure the companies are weighted fairly so that the value of the fund is not largely linked to one company.
8. The biggest one that lot of people tend not to do is contribute weekly/bi-weekly or even monthly. Never ever put all your money for investments all at once. Spread it out in portions. This way you take in the downside and upside. You never know the direction of the market. So what if the market goes down 20% in 2 months after you put in $10000. You just lost $2000+. You want to protect against this risk. Someone can ask what if it went up 20% instead. Yes its possible but that’s pure luck either way. The key is to limit the risk and continue to gain money. If you want to not depend on luck then you want to invest weekly or bi-weekly. This way if the market goes down 2% or up 2% you are putting less portion of your money and less will be lost if there is a disaster. yes you could be limiting the growth if it goes up but the fact that you don’t know and want the best strategy then you should put money in small portions that way if it goes up you continue to slowly add money. If it goes down you are getting the potential of making more when it goes back up. This is the most important thing most people doesn’t do during RRSP season. They throw money in at the last minute in lump sum. DO NOT do that. Else you are leaving it up to LUCK. I don’t know about you but my LUCK sucks. So have a strategy that I mentioned. Pick funds with long good history and put money in small portions like weekly or bi-weekly.
9. With my own experience I have seen many portfolio managers just trying to get your money but doesn’t have the true desire to help make your goals come true when it comes to investing for your future. Many of them don’t have a strategy or lack knowledge in investing. They usually try to get you to come into the bank or there institution and get you to do some questionnaire to determine your risk tolerance. Its important you learn and apply some of the simple rules I have mentioned here. Ask them questions and see what kind of answers you get. You can do a simple test and see. Suppose you go to the bank or institution with $10000 and see if they will ask you to put all that money in at once or suggest to put that money in a separate account and transfer money bi-weekly or once a month to the investments. If they tell you to put all your money in at once then they are after your money. Its even worse if they put it all in just one fund. If they split it in multiple funds then see if they will suggest that you start a bi-weekly or monthly payment plan to continue your investments. If they don’t then you know they were just after your money and will deal with you again next year. The bi-weekly or monthly option should be a given for any good investment manager to suggest you.
10. Have a goal for retirement early. Most people aim to have $1mil for retirement. Now some aim for $2mil. So its up to your lifestyle.I would say somewhere between $1mil to $1.3mil should be the goal.
11. Do Tax free savings account and max it out.
12. Do RRSP and max that out.
13. Do RESP for kids and max that out.
14. Buy a home and pay that off quickly as possible. This is actually debatable as to if its really worth paying it off early or later. I prefer no debt so I can have a peace of mind and not waste money on interest. I will add more on this later. If you purchase a home then one good approach you can take is to rent out the basement. This way you can use the money for paying off the mortgage and at the same time the value of the home will continue to go up. So long term you will have a solid value on the home and at the same time have large portion of the home paid off.
15. Consider living with joint family members. It is of great benefit to live together with your brother and parents in the same large home if its possible. People laugh at such ideas thinking they will not have privacy. To be honest privacy should not be over valued with family. Whats more important and who cares for you the most. Fact is our parents take care of us all our lives and we should give back to them. Living parents is nothing to be ashamed about. Living with your brother and his family should also not be an issue. Why have a large home with so many rooms when there is no one to live in them. Just a thought but financially you can save some money by splitting some cost and sharing and enjoying each others company. People when they are left home alone tend to get depressed and develop anxiety. Think about it and of course do it if it makes sense or at least try it and see how it goes. Great saving this this way. Its all about lifestyle.
16. Best time to buy a home or put in a large amount of money into the market for investments is when there is a large correction. Large correction is between 30-50% of the overall market. So start buying some funds when the market drops 25%. Then buy again when it drops 35% and again at 45%. So if you are investing large portions then buy in 3-4 phases. Start buying first 25% of your total investment money when market drops 25%, then buy another 25% again when market drops to 35% from its high and buy another 25% again when market drops 45% from its all time high and buy last 25% when market drops 55% from its all time high. Market will always go back to its all time high so look for large corrections as they are great opportunity to invest and reach your retirement goals. Example: The opportunity will come in 2020-2021 due to covid-19. Its a matter of time and there is a lot of uncertainty. I am expecting a large market correction in the next 10-18 months.
Will add more to this later when I have time.