Everyone has their favorite money tips, and we’ve been looking at the favorites of some Canadian financial advisors. Here are the first 5 and here are the next. Keep reading this post for tips 11 through 15.
Emphasize rewards. “Think of a budget as pre-spending and emphasize the objects or experiences that you want to spend money on.” This sounds psychological, but putting yourself in a positive mindset can be helpful. If budgeting is somehow designed to be “fun” rather than a chore, you have a better shot of sticking to the plan.
Use debt intelligently. A number of people have been burned by debt and they believe that all debt is evil and must be avoided at all costs. You can compare that to alcoholics that are finally on the wagon (or is that off the wagon?) and who will not drink alcohol again. Anything is find in moderation, including debt. Debt can be used to your advantage in a number of cases. You can leverage your expenses by using a credit card and paying the balance off each month. You can even borrow money to purchase investments (for example, a house) when the risk-adjusted return is higher than the interest you’ll have to pay to borrow.
Take the long view. Ah, compound interest does show up among these tips. The financial advisors recommend automatic investing in a low-cost, well-diversified portfolio. We all know what Robert Kiyosaki thinks of diversification, but others seem to think it’s a good idea, which brings us to…
Diversify, diversify, diversify. “This is the most important rule of investing… Your portfolio should span both stocks and bonds and ideally should include foreign as well as domestic investments.” When you diversify across mutual funds, you should look at what the funds consist of rather than the general description of the fund. If I hold several mutual funds, but the top investment in each is Microsoft, then I’m not getting the diversification I think I am.
Plan your portfolio, then stick to your plan. The plan they are referring to is your asset allocation. Decide on how you want your portfolio divided between items offering varying degrees of risk, and then rebalance your portfolio occasionally (quarterly or yearly for example), so you are not overwighted in one type of investment that had a good run recently.
That should be enough to keep yourself busy for a while. There are ten tips left from our Canadian neighbors, and we’ll take a look at those shortly.