Author Tina Hay’s Napkin Finance is, as the name would suggest, a great way to boil complex financial planning concepts into easy, digestible pieces.
While the book is intended for U.S. readers, there’s a treasure trove of good information for those of us who reside north of the border.
In the chapter on saving, she quotes famed investor Warren Buffett as saying “do not save what is left after spending, but spend what is left after saving.” It’s a great idea, she writes, “to make sure you have cash available for emergencies, unexpected bills… and future goals,” and a savings account, ideally separate from your spending account, is a great way to get there.
Hay talks about budgeting ideas, including what she calls “the 50-20-30 budget.” That’s “50 per cent for essentials, 20 per cent for financial goals, and 30 per cent for flexible spending,” the book explains.
In talking about debt, she calls borrowing for a home or education “good debt,” and credit card balances “bad debt,” noting it takes the average American 12 years to pay off a credit card if he or she only pays the minimum amount owing.
If you want to have a good credit rating, Hay advises, then pay your credit card on time and, where possible, in full; don’t miss loan payments; resolve your bank overdraft (pay it off), pay all bills on time and avoid going into collection. All these factors are strikes against good credit, she warns.
Investing, she writes, can be a “powerful way to grow your wealth,” chiefly because stocks generally perform well over the long term. By buying stock, you become “a part-owner of the company” and share in profits via growth in the value of your shares and, occasionally, through dividends. With a bond, “you become the lender to the entity that issued the bond,” and the interest you receive is basically like rent on the use of your money. Hay says alternate investment classes can also be good in your portfolio, including real estate (“you may earn a return when your tenants pay rent”), hedge funds, and private equity investments.
Watch for fees if you invest in mutual funds, she writes; fees are lower with exchange-traded funds or if you use a Robo-adviser rather than a broker.
For retirement savings, Hay advises that you “save 15 per cent of your income and invest heavily in stocks while you are young.” She says you should “take advantage” of tax-assisted savings (in Canada, this would be things like RRSPs or workplace registered pension plans). Don’t forget, she writes, to think about your estate planning as well – don’t leave the decision on what should happen to your money and possessions up in the air.
This is a nicely-written book that’s offering up complex topics in a simple, easy-to-digest way. There’s a nice splash of colour, such as the fact that some people measure inflation over time by looking at the historic price of a Big Mac! It’s definitely worth a read.
If you aren’t great at investing, and want to follow a diversified approach while avoiding high fees, take a good look at the Saskatchewan Pension Plan. Through SPP’s Balanced Fund your investment dollar accesses Canadian and international equities, bonds, mortgages, real estate, infrastructure and short-term investments – all for a very low management fee.
|Written by Martin Biefer
|Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing and classic rock. He and his wife live with their Shelties, Duncan and Phoebe, and cat, Toobins. You can follow him on Twitter – his handle is @AveryKerr22|