Money can seem complicated sometimes. Mortgages, car loans, interest rates, saving for retirement – it’s a lot to take in for some.
We all make mistakes with our money at some point but it’s important to focus on the big things – if you keep it simple and get the major things right then the small things seem even smaller.
Here’s a few simple money rules that are so simple they often get overlooked.
Pay Yourself First
This one is obvious, maybe so obvious that many people forget about it. Paying yourself first guarantees that you’ll have money set aside each month for an emergency fund, investing or paying down debt.
When I first entered the workforce I didn’t know what my investing strategy would be, but I knew that putting money aside automatically each month would help my cause.
I set up an automatic withdrawal each month with my bank so that $400 per month gets put into my RRSP account. This strategy kills two birds with one stone – it gives me some money to invest in my RRSP and it also creates a tax deduction when I do my tax return, which usually generates a tax refund.
It’s simple to set up and once it’s set up you don’t even have to think about it, the money just comes out each month automatically.
I’ll be honest, if I had to think about putting that money aside each month it probably wouldn’t happen – which is why making it automatic is so important.
Don’t Move Often
As consumers we are constantly exposed to plenty of ads convincing us that a bigger, better house is something we should strive for and should eventually try to achieve.
To accomplish that many companies sell the idea of a “move up” house – a house that is big enough for now, but further down the road you will want to sell and move to a bigger home when you have kids, start a family, etc.
The problem with this idea is that moving costs much more than you think – realtor fees, storage costs, the cost of the physical move, mortgage penalties, legal costs, etc. – all of these can take a serious bite out of the equity in your home.
Related: How to Reduce Your Mortgage Penalty
No one can time the market perfectly so our strategy is to buy a home that is large enough to last us 10-15 years (or more). When we bought our house I didn’t want to get caught in a situation of having to sell in a down market so I made sure our house would last us for the long term.
Buying a place that you can afford and can stay in for a long time – it’s a simple way to protect the equity built up in your home and avoid all the hidden costs with moving.
Investing: Less is More
Some investors think the more they trade, the more successful they will become. Research has shown that the opposite is true. The more someone is actively involved in their investments (buying, selling and even day trading) the lower their chances of success.
With this in mind my investment strategy is simple – buy when prices are low and hold for the long term. I can’t time the market and I won’t need the money right away so there isn’t much point to selling in most cases.
As Warren Buffett once said, if you aren’t comfortable holding a stock for 10 years you shouldn’t even think about owning it for 10 minutes.
I tend to agree with him on this one and I think the less an investor tries to time the market, the greater the chances of success.
Be Realistic About Vehicles
Car dealers love when the economy is going well – workers receive bonuses, many are promoted and consumers generally have more spending money. Some people feel more income should be spent on vehicles, and they feel your vehicle should reflect your ‘status’ in society.
Personally I think consumers should spend significantly less than they can afford on vehicles. Whether it’s making due with one vehicle instead of two, avoiding the temptation to trade in your car every 3 years or simply choosing other forms of transportation – all are smart money choices.
Vehicles are much more expensive to run than most realize, and just because someone receives a raise at work doesn’t mean they need to immediately get a nicer vehicle. In fact, it would be a better money decision if they did the opposite – either downgrading their vehicle for something more economical or just driving less.
Conclusion: money doesn’t have to be complicated – get the ‘big picture’ things right and the money will take care of itself. Simple money rules like not moving too often, riding out the market cycles and paying yourself first are easy to forget but effective.
What simple money rules do you live by?