25 timeless personal finance tips from MoneySense

1. Pay yourself first

One of the most effective ways to build your savings is to set up pre-authorized biweekly or monthly contributions that automatically move money from your paycheque to an investment account. Get that money into registered retirement savings plan (RRSP) or tax-free savings account (TFSA) before you have a chance to spend it and you’ll barely miss it. You’ll also get the benefit of dollar-cost averaging, buying more shares when security prices are low and fewer when prices are high. This can help reduce timing risk and the impacts of volatility.

2. Trim your tax bill 

Tax-sheltering your money is an easy way to boost savings. RRSPs let you defer tax on a portion of your income until retirement, when your tax rate will likely be lower. The RRSP’s other big benefit is that the investments grow tax-deferred until you make withdrawals, meaning you don’t have to pay capital gains taxes when you sell your investments, nor do you have to pay tax on the annual dividends or interest.

TFSAs are another great way to grow your investments while minimizing taxes. Unlike with RRSPs, money put into a TFSA earns no upfront tax refund, but the government doesn’t get a single dime of your money when your investments earn a return or when you withdraw any money. 

3. Debt first, savings later

It’s futile to start investing if you’re also struggling to pay off credit cards or unsecured lines of credit with interest rates as high as 28%. By comparison, the long-term expected return on stocks is 6% to 8%. “Getting rid of high-rate debt earlier will get you ahead,” Certified Financial Planner Jason Heath has said. He remains a MoneySense columnist today, contributing to Ask A Planner.

4. Reinvest your refund 

Supercharge your savings by reinvesting RRSP tax refunds. If you contribute $5,000 to an RRSP each year and reinvest the $1,000 to $2,500 refund it generates (depending on your tax bracket), after a decade, your savings could be as much as 50% higher.

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5. Be realistic

Few people become a millionaire overnight. Building wealth takes time, so have realistic expectations about what to expect from your investment returns. Expecting to earn 12% per year probably isn’t realistic no matter how much risk you’re willing and able to take. These days, you probably shouldn’t expect long-run returns of more than 3% on bonds and 7% on stocks, meaning you’re lucky to get a 5% return on a balanced portfolio.

6. Watch out for hidden fees

Hidden costs can cause irrevocable damage to your investment portfolio. You may not see it on your quarterly statements, but investment management costs steadily erode returns all the same. Mutual fund investors often unknowingly pay management expense ratios (MERs) between 2% and 3% every year. “If your fees are 1% or lower, you’re doing OK,” said actuary Malcolm Hamilton in MoneySense’s June 2014 issue. “But anything over 2% is causing so many problems. At 2%, fees will eat up a third of your income over a lifetime. That’s considerable.”

MoneySense reader Helen said: “Fees matter. They can significantly erode investments. This spurred me to learn about ETFs and the couch potato [strategy], as well as the importance of asset allocation. No one—including advisors—consistently beats the market benchmarks.” Check out MoneySense’s annual report on the best exchange-traded funds (ETFs) in Canada.

7. No plan is permanent

You can’t put a portfolio together until you’ve identified your specific goals and developed a plan for reaching them. But realize your original plan will never come to fruition exactly as envisaged. “No one has any clue what the landscape will look like 30 years from now,” said Hamilton. Plans must be revisited yearly and adjusted due to changes in your personal life: job loss, birth of a child or divorce, for example. “What’s important is the process of looking ahead and adjusting your plan and changing it all the time,” he said. “That process is navigation.”

8. Your broker isn’t your buddy

Get to know your financial advisor—that is, check out their credentials and employment history, verify licensing and check for any disciplinary action. Don’t be passive—lead the conversation and take the time to understand your portfolio.

If you are not getting the input you need, your fees are high, or you’re lacking confidence in your advisor, you shouldn’t stay with them just for the sake of it. It’s your money, and you need to do what’s in your best interest.

9. Stick to what you can understand and learn

Avoid complex products that look too good to be true or can’t be explained easily, according to Dan Hallett, vice-president of High View Financial Group. He told MoneySense: “Products are sometimes structured to take advantage of people’s lack of understanding.” Instead, build your portfolio with individual stocks and bonds, guaranteed investment certificates (GICs) and low-cost funds that don’t use leverage or other exotic strategies that promise more than they can deliver.

10. Track your investments

Knowing your portfolio earned 10% doesn’t tell you much unless you know the context. For instance, if your benchmark returned 15% over the same time period, that might be cause for concern. If you have an advisor, ask for your personal rate of return on an annualized basis. But even a Canadian DIY investor should measure portfolio performance to determine whether a strategy is on target.

11. Pass on your financial knowledge

We all want our kids to be responsible and well-mannered. But how about being financially savvy? Teach your children the value of a dollar by showing them how to grow their money. For adult children, 18 and older, contributing to a TFSA is a good idea. But younger kids need short-term goals, like saving for a new bicycle. The best way to teach, of course, is by example.

Also, opening a registered education savings plan (RESP) for them is a good way to prep for their future. Check out MoneySense’s Student Money Guide for both parents and students. 

12. Focus on the big picture

Too many people don’t look at their portfolio as a whole and instead focus on the finer details because they seem more interesting, said Hallett. “It’s natural with the amount of information coming at you online and through the news to feel prompted to do something with your portfolio as a response. Most of the time that’s not a good idea.” Instead, all portfolios should be driven by the fundamentals of selecting an appropriate asset allocation and sticking with it.

13. Branch out and diversify

Many investors keep 100% of the equity portion of their portfolios in Canadian stocks, something academics call “home-country bias.” Sure, Canadian stocks may feel comfortable, but don’t forget that Canada represents just 3% of the global stock market. A well-diversified portfolio should tap into global stock markets to increase your investment opportunities and reduce the risks from a crash in one region.

14. Beware of biased advice

Many advisors in Canada receive commissions from the financial products they sell. This can create two potential conflicts of interest: 

1. It may limit the range of products they’re able to sell.  
2. It may motivate them to sell you more expensive products even when cheaper options exist. 

A better alternative to consider may be a fee-based advisor who is paid directly and transparently by you, meaning you’re more likely to get unbiased advice.

15. Avoid unnecessary risk

Ill-chosen stock purchases are one of the most common and costly mistakes made by impulsive DIY investors. Even prudent investors can make overzealous tactical moves based on current market conditions, ditching stabilizing assets from their portfolio in favour of more stocks. Always remember: speculating isn’t investing—it’s gambling. So ask yourself if the money is worth losing when jumping on the bandwagon of meme stocks and other short-lived, risky trends.

16. Buy insurance in bulk

The best way to save on insurance is to give the same company all of your business. That alone will save 5% to 10% annually on your premiums. Simply raising the deductible on your home and auto insurance can see premiums drop by another 20%. But don’t stop there. If you’re shopping for disability insurance, consider a policy that begins paying out after 90 days of a disability rather than 30, which could cut your premiums in half.

Also, one reader told us: “My favourite MoneySense tip is simply to ask for an increase in your deductible on your home insurance in exchange for a lower premium. It saved me a few hundred dollars with just one phone call,” said Isabelle. Just make sure you can afford to cover the same cost without going into debt. Another tip is to pay your insurance premiums annually instead of monthly. Your insurer may lower the cost of your premiums if you pay up front.

17. Renovate for you

Forget about doing renovations just to boost the resale value of your home—in many cases, they won’t. Many of us will be staying put a lot longer than we think, so focus on doing renovations that actually improve your everyday existence, such as adding space-saving closets or building a deck.

18. Take control of your utility bills

The average home owner spends $3,840 a year on water, gas and electricity, up from $2,234 10 years ago. And those costs are likely to keep rising. However, here are some easy upgrades that will trim your bills: Installing a water-saving showerhead, purchasing an energy-efficient fridge, air-sealing windows and doors, or getting a programmable thermostat could all help your savings grow over time. Here are more tips on how Canadians can save on household bills.

19. Pay off your mortgage quickly

Putting more down on your mortgage could save you thousands in interest charges. Consider simple strategies like opting for accelerated biweekly payments (so you make 26 payments per year instead of 24). Also, consider applying any bonuses from work or other windfalls to your mortgage up to your annual prepayment limit. Even a small amount can go a long way. For instance, an annual lump sum payment of just $1,000 on a $500,000 mortgage at 5% over 25 years will decrease your mortgage amortization by about one year and eight months.

20. Live closer to work, or work from home or with a hybrid arrangement

People often underestimate the true cost of commuting, both in terms of stress and dollars. In 2014, MoneySense pointed to a calculation by the Canadian Automobile Association: A couple can spend more than $200,000 over five years making the one-hour commute from Barrie, Ont., to Toronto in separate Civic LXs. When adjusted for inflation, that number becomes $254,297.19. 

If you work in a major Canadian city, those costs justify paying a little more for a condo or townhouse in the city and taking public transit or walking to work. 

21. Go for experiences, not stuff

Many of us have basements or garages full of stuff we don’t need. Instead, build memories. Simple things like a family trip to the zoo, a cooking class with a sibling or even a saved-up-and-already-paid-for family vacation with kids or grandkids can build good memories that will last forever. Or consider giving your loved ones memberships to wine clubs, arts centres or aquariums. These cultural institutions rely on membership fees, so your support is invested back into your community.

21. Negotiate, negotiate, negotiate

Simply asking a polite question like “Can you come down a bit on the price?” is often enough to get yourself a deal. If you get a “no,” ask for free add-ons instead, like free delivery or a three-year warranty on an appliance. These things don’t cost the store a lot, but they could add up to big savings for you.

22. Delay retirement if you can

The longer you keep working, the better off you’ll be financially. Employer-sponsored defined benefit pensions pay out more the longer you stay. The Canada Pension Plan pays more if you start taking CPP at the latest possible age of 70, rather than the earliest possible age of 60.

Same goes for delaying the start of Old Age Security past the earliest possible age of 65. It can also be deferred to age 70 for a higher pension. If you’re counting on your investment portfolio, the longer you work, the more a portfolio has time to grow—and every extra year worked means one year less the portfolio has to last. If you enjoy work, think twice about early retirement. If not, you may need a career change instead.

23. Keep using TFSAs, no matter how old you are

The TFSA was introduced by the late federal finance minister Jim Flaherty, and it may well turn out to be the biggest favour Ottawa ever did for retirees. There’s nothing like tax-free income flowing to you in retirement, and that’s exactly what the TFSA was designed to provide. Unlike with RRSPs, you can keep contributing to TFSAs for your whole life. 

24. Part-time jobs can make a huge difference 

Part-time work or a side hustle in retirement can provide structure, even for just a couple of mornings or afternoons a week. It also means you’ll continue to get out of the house and interact with other people. Plus, you may find the extra income welcome, which means you’ll have more money for retirement, or if already retired, you will have less of a need to draw down from your nest egg. Read How to make more money in Canada: 6 side hustle ideas.

25. Consider inflation

Inflation can be a serious threat to long-term wealth. Even if you are extremely risk-averse, it’s prudent to keep at least 25% of your portfolio in stocks: preferably stable dividend payers that keep raising those dividends. (Check out MoneySense’s ranking of the best dividend stocks in Canada.) Other inflation hedges include real return bonds or ETFs that package them up, inflation-indexed annuities and gold/precious metals.

More food for thought on inflation…

Compare grocery prices from 1935 and today

About MoneySense Editors

MoneySense editors and journalists work closely with leading personal finance experts in Canada. Since 1999, our award-winning magazine has helped Canadians navigate money matters.

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