When you are in control of your finances, your income and your debt the feeling is truly empowering. Now is the time to get control. Interest rates, which have been low for some time, will begin to rise in late 2017 or 2018 and that usually means inflation is not far behind. Now is the time to focus and make sure your financial game is in perfect working order. Here are Ten Financial Rules to Follow for your investment plans.
Ten Financial Rules to Follow
Take control of your finances
Take the time to develop your financial plan that meets your personal goals. Brush up on your financial know-how through courses and seminars. Whether you are a small investor or have a large investment base, getting in control will truly be empowering and it will set you free from worry about your finances. Map out a plan and follow it. Adjust it as the financial landscape changes. Review it regularly and fine tune it as needed.
Pay down your debt
Paying your own debt first is an obvious kind of thing to do, however there is a priority in terms of which debt to pay. Store credit cards carry the highest interest rates, sometimes upward of 28%. This debt is what you should focus on and pay off first. You will and must meet all of your obligations at the same time. Make sure you pay all of the monthly installment payments on your other debt to avoid bad credit ratings. Once you pay the credit card debt, focus on the next highest interest debt that you have until it is paid off .
Once you decide to pay off your credit cards, you will have less to spend, however you want to make sure you are not racking up new debt at the same time. Set a budget that allows you to live within your means. Spend less at least for a while . You will find that the extra money you gain will be useful in reducing debt and also saving for the future. This is a life changing habit to form and it is important to spend less so that you can reduce debt as well as not create new debt.
Most Canadians save on average less than 5% of their personal income. We used to save about twice that and the folks in the US save even less than we do on average. Try to get into the habit of saving 10% and have it taken directly off your pay check so that you do not even need to think about it. After while it will be just another deduction on your pay check and you will benefit by building your savings that will come in handy if you are laid off or better still for retirement.
Develop a personal investment policy statement
Large companies do this because it is a professional way to manage money and manage a business. Why should you not do this as well? Write out your goals and review them at a minimum of once per year, more often if the market is volatile or you have additional money to add to your portfolio. Take into account your tolerance to risk and also decide between growth of stocks vs. income from dividend stocks and bonds/GICs.
As part of your investment plan review, review the balance of investments that you have between bonds, stocks and mutual funds or other investment vehicles that you may have. Try to diversify your investments and strike the right balance of stocks, bonds and mutual funds. Does your current investment mix meet your investment goals and your investment plan? As the markets increase and recede, you may need to re-balance your investments to keep the right balance in your investment account.
Get tax efficient
Being tax efficient is just good business sense. Take advantage of all of the programs to defer or decrease your taxes. Can you increase your deductions, or defer taxes to another year or share your taxes with your spouse? If you do not have the time, if you are uncomfortable, if you just do not want to do your taxes, hire an accountant to review your taxes to make sure that you are getting all the tax deductions you are entitled to. Even if you do your own taxes every year, you might benefit from having an accountant to review your taxes for one year to see if you missed anything.
Most people have car and house insurance. Many do not have life insurance or disability insurance. If you have this kind of insurance through your job , review it to make sure that your family could continue to live comfortably without your income. If you do not have life insurance or disability insurance, consider purchasing this type of insurance. You do not want to leave your family destitute and poor.
Don’t give up
If you are investing in high quality stocks, bonds and mutual funds, chances are you can weather any storm. In 2009, we saw one of the largest drops in the stock market in history. Watching your investments drop in some cases up to 40% is very hard to take. Staying true with your investment plan and sticking with high quality investments will usually bring consistent returns as well as withstand financial shocks over the long term.
Review, adjust and enjoy
Consumers really need to take responsibility for their own investment plans and their own retirement. Continue to review your plan. review your investments and make adjustment as time goes on and the markets fluctuate. Maintain diversity and maintain a balance with your investments . Stick to blue chip and remember the golden rules of investing.
Diversify, never put all of your hard earned money in one stock etc or even with one investment adviser.
If it is too good to be true, then it probably is not true.
Take control of your investments and learn what you need to know to make informed decisions.
The recent economic and stock market downturns have taught people the need to spend responsibly, within the context of a financial plan and their lifestyle. Having a solid financial foundation in place frees you up to do all those things that give your life more meaning.