My seven steps to financial bliss

The lessons of my years at MoneySense.

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by

From the July/August 2008 issue of the magazine.

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When MoneySense hired me four years ago, I knew little about personal finance. So I immersed myself in books, took courses and chatted with
the smartest folks in the field. I shared what I learned with you — and I also put what I learned into practice in my own life. The result? I have eliminated my personal debt and multiplied my savings five times. I am now leaving MoneySense to take on a new job. But before I go, I’d like to share the seven most important lessons I’ve learned about money. These lessons have made me wealthier and happier. They can do the same for you.

Pick one goal at a time

At first, I didn’t know where to start getting my finances in order. Should I save for a house? Contribute to my RRSP? Pay down debt? I was so confused, I wound up doing nothing. Then Malcolm Hamilton, an actuary at Mercer in Toronto, gave me a tip: he suggested I attack one goal at a time. That simple change made a huge difference. For the first time, I could see myself actually making progress toward a goal. I knew exactly what each dollar I saved was helping me to accomplish. You can apply the same strategy at any stage of life. First, pay off your credit cards. Then attack your mortgage. Then save for retirement. Tackling one goal at a time simplifies your financial life and gives you the satisfaction of making rapid progress toward a goal.

Small steps make a big difference

Even when you know the goal you’re working toward, figuring out how to get there can seem overwhelming. So I reduced the journey to a series of small, manageable steps. First I liquidated my existing mishmash of investments. Then I replaced them with a few low-cost funds. Then I looked at ways to cut my spending. The result? After four years of little projects, I have completely made over my finances without giving up a single weekend.

Make your savings automatic

The most important step I took was setting up a monthly mutual fund purchase plan. Thanks to that plan I’ve saved more than ever before — and it was easy. My savings are whisked away and invested before I can touch my paycheque. Whatever is left in my chequing account I can spend guilt-free.

Keep it simple

Segregated funds, hedge funds, principal protected notes and other complicated investments sounded tempting to me four years ago. But I’ve since found out that most successful investors don’t go near such opaque, pricey investments. Good investors tend to buy plain old stocks, bonds, ETFs and low-cost mutual funds — not complicated products with expensive guarantees and lots of moving parts. Now if I don’t understand it, I don’t buy it.

Your home is not an investment

Buying your own home is an important step to helping you achieve financial freedom. But I’ve learned that you shouldn’t get carried away by the recent real estate boom. History shows that house prices tend to keep pace with inflation over long periods, but don’t usually produce huge profits. So I no longer think of buying a home as an investment — I think of it as buying a consumer product, like a car. That’s why I don’t want to pay too much for a home and why I don’t want to borrow more than I absolutely have to.

Not everyone is a great investor

I’ve taken courses on portfolio theory and fundamental analysis, but I haven’t had the patience or interest to apply most of that learning to my own portfolio. Luckily, you don’t have to. Some of my investor friends have confided to me that after years of analyzing companies and building their portfolios one stock at a time, they would have done just as well with our simple Couch Potato Portfolio.

Money isn’t happiness

If you use your money to gain the freedom to spend more of your life doing things you love, it can make you happier. But studies show that material possessions don’t deliver much of a happiness boost on their own, because we quickly get used to new cars and bigger homes and return to our old level of happiness. I witnessed this first hand when I discovered that the multimillionaire investors I met were generally not any happier than regular folks. So if money doesn’t make you happier, what does? Spending time with family and friends, a partner you love, good meals, getting enough sleep, moderate exercise and a healthy sex life. You don’t have to be a millionaire to afford any of those things.

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