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Joanne Shaw, B.A.
Joanne Shaw, B.A.
Financial Advisor

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Personal Wealth and Finance


Advice by Design with Planning Values

September 1, 2023

Here are some essential strategies that will help you achieve financial independence.

As the graph indicates, it is important to get solid advice to guide you with financial strategies incorporating planning values such as those noted.

Separate your savings from your investments. Before you begin to invest for a long-term financial goal, you’ll need to save for an emergency fund – up to six months’ worth of your salary. Then, you are prepared for an unexpected expense, such as an engine job on the car, a leaky roof or loss of employment. Otherwise, you may need to tap into your investments for retirement or some other purpose.

Budget based on your income rather than on your desire. Plan to spend less than you earn, and don’t take on debt that your future income cannot service. Budgeting is based on your income, not on your past spending habits. Total your monthly expenses such as housing, utilities, food, clothing, child-care, transportation and debt repayment. This sum should not exceed 75% of your after-tax income.

Invest by paying yourself first. You will only beat procrastination if you focus on paying yourself first. A rule of thumb: save 10% to 20% of every paycheque. This can be achieved by purchasing units in a promising investment fund on a systematic basis using your bank’s automatic payment program.

Use beneficial debt to build equity. Minimize and pay off consumer debts – monies borrowed to purchase cars, clothing, vacations, stereos and other gadgets that decrease in value. Conversely, debt to get an education, get a home mortgage, or start your own business may make sense.

Differentiate your risks. Inflation risk will compete with long-term investment risk. Many companies’ equity investment funds and stocks are not guaranteed, meaning a risk exists. The interest on investments such as buying blue-chip stocks, if not held in an RRSP, is tax-deductible.

Determine to diversify. A properly diversified portfolio will hold several types of funds, including a mix of equity funds. Equity funds should differ in terms of what sector of the economy they invest in, such as agriculture, technology, mining, or finance. Though each fund would hold many stocks, make sure they are diversified among the various sectors. One sector may gain while another may lose some value, balancing over time. Equity funds can also diversify by country (such as holding domestic, US and global funds), investment style (such as growth funds or value funds), or company size (such as small, mid, or large-cap). Consider adding bond funds to the mix to diversify even more.

Optimize your Portfolio. If you can optimize your portfolio, you may minimize the risks to help your return on investment. To truly optimize, one needs in-depth knowledge only obtainable from a professional who studies funds as a specialty. To diversify in a balanced manner, one must weigh many factors about economic sectors, managers’ styles, company size, and foreign economic conditions.

Save an Emergency Fund. The COVID-19 pandemic has taught us that saving funds for life’s occurrences out of any mortal’s control is essential. At least three months of income should be allocated for emergencies that may include car or home repairs, contingencies with family expenses, the outbreak of a disease, or a natural disaster such as a flood or fire.

 

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