What Does “Pay Yourself First” Really Mean?

The phrase “Pay Yourself First” has become a commonly accepted financial term promoted by many Guru’s and Author’s including David Chilton (The Wealthy Barber) and David Bach (The Automatic Millionaire) to name a few.

To some it may be difficult to understand exactly what it means, so let me elaborate.

The underlying concept of “pay yourself first” is to take 10% of your pre-tax income and invest that for the long term, before you worry about your other expenses. You can accomplish this through your personal RRSP, your company pension plan, or numerous other investment vehicles. It is considered a fact that you will retire wealthy assuming you start sooner rather then later.  Einstein himself said that ”the power of time and compound interest should be the 8th wonder of the world”.  

Your Take-Away: In order to actually implement this concept, you do not need to stretch yourself to the point of becoming cash flow poor.  In fact, it is very common for our clients to start a monthly savings plan with only 5% of their monthly income and quickly increase that number over time as they realize how easy it is to manage their existing lifestyle even with a decrease in cash flow.  I’ve said it before, and I’ll say it again: Small, consistent steps lead to large, exciting results.

Starting a monthly investment program is easier then you think.  Don’t feel as though you have to start huge, just make sure you start and I’m confident you’ll find that it’s a lot easier to manage your cash flow then you think.

Until next time, have a Terrific Thursday!

Chris

Retirement Questions Continue to Surface

Yet another article was published in the Financial Post today trying to address the many questions surrounding the issues of retirment in Canada.

Of the many interesting thoughts that were raised, one that caught my attention was the topic of Baby Boomers bringing debt into their retirement years.  Monique Tremblay, Senior Vice President at Desjardins, claims that “More than 80% expect to be in debt when they enter retirement yet are complacent about it.” The primary reason most Canadians say they will not need to replace 70% to 80% of their income is because their “debt load will be virtually non existent” appears to not hold much weight in terms of Tremblay’s claims.

Your Take-Away: Regardless of whether you plan to bring debt into your retirement years or not, and I’m assuming that very few if any would ever plan that, replacing 70% of  your current income during retirement seemse to be more logical and reasonable then ever before.  You may exceed that goal, you may just fall short.  But defining your desired retirement income today will give you something to aim for tomorrow. 

Its been said many times before, and I’ve even written a post to this effect, but the mantra “If you fail to plan, you plan to fail” has never been more true.  Don’t feel like you have to change your entire future in one fail swoop, but do make sure you take the smaller, more necessary steps towards achieving your plan.  What is step #1?  Create a plan.

Have a wonderful Wednesday!

Chris

Retirement Needs More Confusing Then Ever

Another great article was published at www.reportonbusiness.com and was a follow up to the Fidelity survey results from last week.

I had commented on the article and stated that each situation is very unique and that although a standard formula has been used for retirement planning (between 70% and 80% of current income needs to be replaced), that it is impossible to rely on that solely.

Specific to the article and some of those individuals Rob Carrick interviewed, I too agree that 80% is probably too high for the average Canadian, but I also believe that the majority of Canadians don’t want to have to live frugally during their retirement if they had the choice. A great question that one Advisor poses to his clients is “How much cash would you need to live comfortably if you were to stop working today and didn’t have child-related expenses and mortgage payments?” That is a great starting point, but not the only question that matters.

Your Take-Away: This very recent article proves all the more that seeking Professional guidance and advice in the arena of retirement should almost be mandatory for most Canadians.  There are multiple tools available online to help you determine how much you actually need to be saving in order to achieve your retirement goals, but it can sometimes be overwhelming to try and fight your way through the options, lingo and calculators on your own.  As always, it is better do something small on a consistent basis, then to do nothing at all.  After all, small steps can grow into large long term results.

Take a serious look at your retirement goals and your current situation and determine for yourself if you could use the expertise of someone who works with individuals like yourself for a living. 

Until next time, enjoy your first day of November!

Chris

Six Investing Do’s & Dont’s

An article was published in the Financial Post defining six “Do’s & Dont’s” when it comes to your investing habits.

I found this article to be a great read and would recommend it to anyone.  Of the six points that Duncan Stewart makes, the one that stands out the most to me is “Do #1″.  He talks about the importance of proper asset mix and diversification and says that “More than 50% of the variance in portfolio returns among all investors is determined by the mix between bonds, equities and cash — so get it right.” Those are pretty powerful words and I couldn’t agree more with his stance that simply throwing paint on the wall will not give you the masterpiece you are looking for, or in turn, the return you want or deserve.

Your Take-Away: It is always enticing to jump into the hottest stock, buy an investment property when you know you are getting a good deal, or even backing down and converting your equities into cash in a market down turn, but there is much more to consider then a quick buck.  You have unquestionably met investors who have struck it rich through a hot stock or some other investment vehicle, but don’t think they are the norm.  Take the necessary time to review your entire financial situation before making any significant portfolio changes, and always ensure that your “hot” or “new” investment is properly diversified with the rest of your portfolio.

Risk in and of itself is by no means a bad thing, and is necessary for those of us looking for substantial returns on our investment.  Just don’t forget to make sure your risk is properly balanced with its potential reward and the rest of your existing portfolio.

Happy Investing!

Chris

Use Your Home Equity to Invest in Real Estate

Thanks to the appreciation in real estate over the last 5 years, owning an investment property may be closer to reality then you think.

This may be common knowledge to some potential investors, but there are a number of key benefits to owning an investment property.  To name a few, you can a) create a predictable monthly cash flow b) enjoy capital appreciation on the entire value of the home and not only on your initial investment c) have someone else pay down your mortgage for you d) enjoy the tax deferral of your capital appreciation over the long run while taking advantage of tax write offs each year. When compared to a retirement vehicle, you can see how real estate has similar characteristics and can be used very effectively in conjunction with your current retirement plan.

Your Take-Away: Using the equity in your principal residence is the most cost effective method of borrowing money to invest in Canada, and the recent market fluctuations have given otherwise cash strapped Canadians the opportunity actually own their first piece of investment real estate.  However, don’t throw caution to the wind and forget that there is a level of risk involved in owning real estate. Make sure you ask yourself if you are someone who is capable of dealing with the possibility of disgruntled tenants, or the ongoing maintenance that rental properties require. If so, then you may just be the next person who takes the leap of faith and buys their first real estate investment.

Your mortgage for a property is an entirely different discussion, so please ensure that you talk with a Professional Mortgage Consultant before you make a decision of this nature.

Until next time, happy investing.

Elisseos

Canadians Retirement Savings Inadequate

An article published in Report on Business states that Canadians retirement savings are not adequate.

According to Fidelity and most investment firms and Advisor’s, the average Canadian will need approximatley 70 to 80% of their current income to live the life they want during their retirement years. Sadly, the reality is that a Fidelity based “survey of 2,200 people aged 25 and older says that Canadians on average have saved enough to generate only 50% in retirement income”. Keep in mind that this retirement income goal is not a one size fits all formula, but our experience tells us that it definitely represents an accurate need for the majority of Canadians.

Your Take-Away: We have all heard the saying “If you fail to plan, you plan to fail”, and I think the above statistics are a clear indication of exactly that.  Knowing what your retirement needs actually are is the first step towards ensuring that you have the retirement savings you need to provide the income you want. An “RRSP Calculator” can be found on many sites, including our own, and it would be wise to at least determine for yourself if you are on track.  If not, something as simple as a monthly investment plan can be the answer you are looking for to make sure you end up where you want to be.

In the words of the now famous David Bach, “Anyone can become an Automatic Millionaire”.

Happy Planning.

Chris

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