The financial habits you create early in life tend to follow you for the rest of your life. That's why it's important to establish priorities early in life and form good money habits that will serve you well in the later years of living when you have to live off what you have saved and not have the time, energy or ability to go out and earn an income.
Nancy and I have an interesting perspective because we get to work with people of all ages and we get to see how various couples have saved and prepared. Here's what we have learned.
Financial priorities of your 30's:
1. Settle into a career and get good at it. There's a shortage of good, reliable employees. Consistently show up and do good work and you'll always be employable.
2. Keep debt under control. It's hard to swim with a brick tied to your foot. That's what debt does - it cancels out your efforts for getting ahead.
3. Start a savings plan. Always and in all ways start saving some cash. Under the mattress, in your sock drawer, a coffee can - somewhere. If your employer offers a matching program to make sure you maximize your contributions. Take advantage of your other savings programs like RRSPs, TFSAs and RESPs. Educate yourself about investing. The internet is a huge resource of information and help.
4. Don't buy more house than you need. Houses did not use to be the number 1 investment of Canadians. What we have seen in the past 12 years is an anomaly. Low-interest rates and home improvement shows have created this. Home valuations should only grow with inflation. Interest rates are going up now and will continue to do so in the coming years. Home prices are going back to rising at historic norms. Having a home is an expense.
5. Don't buy new vehicles. Instead, buy one that is a few years old.
6. Buy the proper amount of life insurance. The odds of your house burning down is about 1 in 1200. The odds of having a disability is about 1 in 6. The odds of getting a serious illness is about 1 in 3 and the odds of dying is 1 out of 1. Everyone has home insurance. Only about 40% of Canadians have life insurance. With the low cost of life insurance, especially in your 30's, it's unwise not to have some. If you have a good income, a mortgage and at least one person who depends on you then you need some life insurance.
7. Have a proper Will prepared. If you do not have a Will someone else has to decide what to do with your assets and your family. Take the time and spend some money to get this done. You can be guaranteed that it will cost less, in the long run, to have a Will then not having one.
Priorities in your 40's:
1. Increase your mortgage payments. Figure out what you need to do to have the mortgage paid off before you retire. Increase the monthly payments accordingly and get that sucker paid for.
2. Get some permanent insurance. This is a great time to convert some of your term (cheap) insurance into something permanent. You can choose terms at this age that are still affordable and also have it paid up before you retire in your early 60's.
3. Focus on your health. This is the decade where your body starts to fall apart and the decade where you realize your limitations. Eat better food. Get out and do something. Focusing on your health now will ensure you don't spend your 60's at the Doctor's office.
4. Maximize all of your retirement saving vehicles like matching group RRSP's at work, TFSAs, personal savings. You only have so many years to build tax-advantaged and tax-deferred savings. If you want to retire in 10 or 15 years, you need to start planning now how you will replace your income.
5. Do not take on any additional debt.
Conclusion
Financial independence isn't out of reach. It's not luck. It's consistently doing the right things day in and day out. It's saving a few dollars each week. Reducing useless expenses. Re-evaluating priorities. Making a plan and following it. Before you know it financial independence and freedom are closer than you thought possible.
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Retirement Income & Investment Planners,
Willis & Nancy
587-755-0159
