Spring Clean Your Investments!

Have you ever wondered why people in lower tax brackets live as well or better than some high income earners who seem to be “just getting by”? The difference is as simple as making smart financial decisions.  It is not so much about “how much money you have” as it is “how you handle the money you have”. The difference between getting by and being financially independent is actually very small. Financially independent people are not necessarily making more money – what makes the difference is they are better at making sound financial investments. 

 Spring is just around the corner! Typically it is a time for “spring cleaning” and this shouldn’t just apply to the home you live in.  With the tax season upon us, now is a great time to consider “cleaning up” our investment portfolio and ensuring we are engaged in profitable investing for our lifetime.   As you go through paper work and statements, make a note of how much money you spend on clothes, coffee, lunches and even simple things like bank fees.  Did you know many banks charge as much as $30/month?  If you are paying high monthly fees to your financial institution, there are other options (i.e. free chequing accounts).  Eliminating the $30/month bank fee equates to a $360 savings per year.  Take that savings and place into an investment account for the next 10 years at average growth of 6% compounded, and your investment will net you $5390.   This is just one example of a cost that we pay little attention to that could make a significant difference.  There are many hidden fees and costs that could make an impact on how much money you accumulate if you started a systematic savings and investment program.

Tips for Financial Independence

1. Spend less than you earn (reduce daily costs for alcohol, restaurant meals, coffee, cigarettes, etc)
2. Have a plan - Stay on track.
3. Buy a house, pay off the mortgage as fast as possible
4. Get rid of all credit-card debt and consumer loans.
5. Set up pre-authorized payments – 10% of your monthly income into an investment account; does not have to be a retirement account could be a TFSA as well
6. If your investment plan is long term, choose equities.  If short term, choose bonds. A well-defined mix works depending on your goals.
7. Do not put all eggs in one basket, for example don’t put all your money in your employer plan.
8. Consider REITS as an alternative to owning rental properties and the hassles of being a landlord.
9. Save and invest job bonuses and pay raises
10. Protection against inflation.  Invest in vehicles that pay more than inflation.
11. Speak to an advisor about a financial analysis and develop a strategy to ensure financial security

Keep in mind, the plan does not always have to be a retirement plan, but it should be a plan that allows you to have the funds to do what you want when you want with your money, like  “mini-retirements”.  Mini retirements are those things that you plan to do in retirement, by doing them now on a smaller scale. 

Finally, "having money doesn't ensure happiness but not having money makes happiness more difficult."

Written by:

Jas Salh

Investment Advisor -- National Bank Financial,

For more advice, send Jas an email: jas.salh@nbf.ca