"You can be bad if you're young, but you can not arm when you are old." That was the slogan a few years ago in a financial services TV commercial.
Truer words were never spoken.
I was relatively poor when I was young. Just about everyone I knew and it was nice. We lived an almost communal lifestyle, sharing money, accommodation, food, beer, cigarettes and other necessities of post-adolescent life. Would it be as much fun as I had to do it again today? Would I do it again? Not on your life!
Now I'm anything but a financial genius, but there are five basic principles that I have learned and used to secure our financial future. And while far from rich, I am confident that I will not have to live in a refrigerator box when I stop working and that my wife is able to comfortably carry on in the event of my demise are premature. (You should know that I'm at an age where I think eighty is a premature death!)
Build a secure financial future related to rocket surgery? Absolutely not - you have to do five important things to get started:
1. Determine your short and long term financial goals. Start by taking a comprehensive snapshot of your current situation - your assets, net income, debts and living expenses. Once you have done this you can start setting long and short term financial goals. Decide what lifestyle you want to enjoy between now and when you retire, what retirement lifestyle you expect to have and what kind of education do you expect for your children.
2. After you determine where you are now and where you want to take in the future steps to your ability to come to protect it - and stay once you arrive there. A large part of the financial programs your family is to insure against large financial losses. There are simply no guarantees against serious illness, accident or untimely death. So take the necessary measures to ensure against loss of life, loss of income and loss of physical assets.
3. First pay themselves. Save at least 10% of pre-tax income - more if possible. Paying your mortgage as quickly as possible, especially in times of low interest rates. In the short term, you'll be better off reducing a mortgage that costs 6% over a taxpayer earning around 1.5% (or less) in a savings account.
Maximize your RSP/401K contribution every year and make the contribution at the beginning rather than at the end of the year. Just do substantially the size of your retirement nest egg will increase when you are ready to make money from you.
4. Avoid credit traps. When using credit cards you always pay any money due for interest is due. Consider paying off your credit card immediately if you have money in a savings account - as with the mortgage, the interest rate on savings is certainly less than what is charged by the credit card company. Avoid using credit cards for cash advances. Usually the interest costs are higher for these costs and start immediately. If you are carrying a balance on your cards to try to negotiate a lower rate with the credit card company. If you need urgent money, it is usually cheaper to negotiate with your bank or credit union. A personal loan
5. Finally, to protect in the event of your death your family. Making a will. If you die without a will in all probability the only thing you can really let your loved ones is a bloody mess - one that would take many years and a lot of money to find out.
Without a will, the court / government decide how your property and assets are distributed. I would expect that there are two chances that they act in a manner consistent with what your needs may be - slim and none!
Making a will does not mean that the Grim Reaper is about to visit you. It simply means that your business in ways you want to be sorted and, as a result, you can protect your loved ones. About your life with a calm mind, because
These five principles are just a starting point - a few suggestions that any financial management professional can improve and expand on. When I talk about how I over time have a regret my financial affairs handled it is not enough enlisting professional help. When we started, the financial management company was not as big and not as advanced as it is today. Who knows, with better help, I would write some of this warm Caribbean tax haven quite a cold Calgary office!
"Do not try this alone - use a trained professional," is absolutely the best advice that I'm really qualified to give.
Dr. Tom Olson © 2004, All rights reserved.
Permission to reprint article granted as long as this signature remains intact.
Dr. Tom Olson is the author of Don? T Die with your helmet on. For more information about Dr. Tom's book and his work
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