Given all the turbulence recently in the Canadian markets and hoping to calm your fears, we wanted to remind you of the basics of financial security (remembering that investing based on newspaper headlines (emotion!) is almost certainly a bad way to make decisions regarding your financial future).
Like any building your financial security must have a good foundation ... we set out below the basics of financial security. Make them part of your New Year resolutions.
1 Spend less than you earn. Sounds easy but many people find this basic building block the most difficult to achieve. We could have said have a budget and stick to it, which would indeed be excellent, but keeping track of what you spend allows you to identify areas for saving (more) money.
2 Have an emergency fund. This is to cover unforeseen emergencies (not general overspending !) and our advice would be to hold 3 months worth of expenses (more if you can manage it) in an easily accessible savings account.
3 Have adequate insurance. How much is adequate depends on your personal circumstances and this will change over time. This includes life, disability, health, household and car insurance as a minimum.
4 Save regularly. Actually this is an outcome of #1. Get into the habit of "paying yourself first", in other words have your savings either taken directly off you paycheck before you get it or arrange for a direct debit to your savings to coincide with when you are paid.
5 Avoid credit card interest as this is the most expensive form of borrowing possible. Always pay your credit card balance in full each month. If you are carrying a balance, eliminate it as fast as possible.
6 Ensure you have a will, a power of attorney (for your financial matters) and a personal directive (for health matters).
7 Write down you long-term objectives. Unless you know where you want to go, how will you know when you get there? Just the writing down of your goals will hugely enhance the likelihood of achieving them.
So these are the basics. Once you have them in place you can start to plan for retirement, wealth accumulation and goal achievement. Without these basic building blocks you may not be successful.
You would probably be surprised how many of our clients approach us for advice about such things as retirement savings, investment returns, fees, tax effectiveness etc. without having put in place the basis for their financial security. So put the foundation in place before building your financial house!