ISBN: 0968394744 READ: July 2015
A true gem about personal finance from a Canadian perspective. Nothing groundbreaking about the content, just a solid base for anyone looking for a smart and safe way to invest. Chilton is a very entertaining writer and makes managing money seem easy and reachable. Not to mention there are some great Toronto Maple Leaf jokes scattered throughout.
Unless you marry into wealth, you will have to learn to spend less than you make.
DY = C + S
DY: Disposable income
Maybe S isn’t so bad after all! It may stand for Sacrifice during our working years, but during our retirement it stands for Salvation.
Almost everyone wants you to spend as much as possible.
I genuinely believe that our never ending material quest is not only sabotaging our financial tomorrows, but also negatively impacting our psychological today’s.
Our brain is of two minds.
1. Executive: prefrontal cortex, the parietal cortex and the temporal lobe
2. Lizard: limbic system, insular cortex, striatum and amygdala.
Immediate rewards cause significant activity in our limbic system,
Despite thousands of experiences to the contrary, we assume that our affection will never wane. The product will somehow always provide us with the pride and joy we/re feeling at the time of purchase.
We only consider ourselves fortuante when we have as much as (or even better, more than!) those with whom we most closely identifuy.
We compare. We covet. We consume.
Our pets live more comfortably that half of the Earth’s population for heaven’s sake.
It’s mind-boggling but true that the average Canadian lives a much better life than did the kings and queens of wealthy empires just decades ago.
4 liberating words: “I can’t afford it.”
On credit cards, for those who don’t carry a balance, they offer an interest free loan and are an excellent tool. That last point isn’t necessarily true though. Among those who pay off their credit cards every month, many still overspend.
If you’re borrowing to invest, an idea we’ll explore later, a line of credit can play a helpful role – flexible and efficient.
Bluntly, your bank’s effort to load you up with as much debt as you can service is often not in your best interest.
“Good Debt” should be defined as any money borrowed to buy an appreciating asset where the cost of servicing the loan doesn’t affect your ability to save to the appropriate level and where the principle will be full repaid before your retirement. “Bad Debt” is everything else.
Studies confirm that retirees with outstanding debt are less happy.
Live in a house you can truly afford.
Cashtration: The act of buying a home, which renders the subject financially impotent for an indefinite period of time.
Your savings comes first; your borrowing decisions follow.
Save first. Spend the rest. Good.
Spend first. Save the rest. Bad.
Pay yourself first, start now, live within your means.
I find a spending summary draws attention to all of the money we let slip through our fingers without a “high return.”
Most off guard spending: cars, dining out, little things/
Life expectancies keep rising and may be about to do so exponentially due to breakthroughs in medical technologies. Just think, you may be married for 80 years!
The power of compounding is unbeatable.
“The best time to plant an oak tree was 20 years ago. The second best time is now”
Its crucial to understated that wealth flows from savings, not from income.
Less consumption doesn’t necessarily lead to less joy.
When we buy something, we’re really spending time, not money.
Spend more on experiences and less on stuff.
We love stories, and experiences create them.
“The best things in life aren’t things.”
When we covet things that we can’t afford, we grow poorer regardless of our incomes. Conversely when we’re satisfied with what we have, we are truly wealthy.
Seemingly small differences in rates of return can make a huge difference in the wealth created over time.
The rule of 72:
The years to double your money = 72/rate of return compounded annually
The financial industry often terms index-fund investors “passive” and all others “active.” I’ve never been more comfortable with those labels.
The aggregate return of investors trying to beat the market MUST match the market’s return.
To outperform the market’s return, you have to outperform the majority of others who are also trying to outperform the market’s return. (The pros)
It’s a mathematical certainty that investors who buy market-matching index funds will outperform the majority of investors who attempt to outperform market-matching index funds. Some would argue its the ultimate triumph of hope over math.
Almost everybody thinks the market is safe that it isn’t. And when most think it isn’t that it is.
Successful investors allocate the appropriate percentage of their money to equities, commit to rebalancing their portfolios periodically and then get out of the way.
RESPs aren’t perfect but they’re pretty darn good vehicles. The investment earnings on contribution and on grants are sheltered from tax as long as they stay in the plan. Compounding without government grabbing its share every year is a beautiful thing.
When you make an RRSP contribution, you get to deduct that amount from your taxable income. The investments inside your RRSP brow free of tax while they stay in the plan.
If you go the RRSP route, don’t spend your refund; If you go the TFSA route, don’t spend your TFSA.
If you need life insurance, I still think your best move is to buy a term policy until you’ve taken full advantage of TFSAs and RRSPs and until you’ve paid off your consumer debts and mortgage.
I love the concept of DRIPs – dividend reinvestment plans.
I see some mutual funds with MERs in the area of 3 percent. Anybody who thinks thats a fair deal for clients has a fundamental misunderstanding of arithmetic, market’s returns, or both.
Over the next few years the costs of financial products and financial advise are going to go down significantly.
The best investors are excellent communicators. They know how to listen, how to teach and how to coach. They love to read about all things money. That’s probably a big part of how they developed their strong communication skills. They spend their time developing and implementing sounds financial plans, not trying to outsmart the stock market.
You should diversify not only amoung individual securities and asset classes, but also by investing in various geographical regions.
The farmer and his wife lived within their means. They used forced saving. They took advantage of RRSPs and compounding. They kept costs down. They took the long-term view.