12 tips for financial independence

December 17, 2008 at 12:14 am Leave a comment

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12 tips for financial independence

Jonathan Chevreau’s Findependence Day is an entertaining read. I picked it up for a review of some financial-planning topics but found myself flipping the pages to see what was going to happen next to the central characters. To make sure I didn’t miss some of the pointers, I skipped back through the text and drew up a brief summary of some of the main ones (see below). Perhaps it is serviceable as a companion piece to the book (which, as I mentioned, does not have such a wrap-up).

1) You can become financially independent without the big score in business or investing by spending less than you earn (cut out lottery tickets, booze, restaurant meals/coffee, cigarettes, candy, etc.)

2) To stay on track, pick a date to be financially independent (“Findependence Day”); to get there, have a financial plan and even an advisor (whose value added includes advice on taxes, household finances, estate planning, insurance, registered plans, and so on).

3) Get rid of all credit-card debt and consumer loans.

4) As a foundation for financial independence, buy a house and pay off the mortgage as fast as possible. A 30- or 35-year mortgage is fine if you use the prepayment and accelerated-payment options to extinguish within 10-15 years.

5) Don’t start investing until at least half the mortgage is paid off; for investing, consider a preauthorized chequing account (PCA) that automatically transfers 10% to 20% of your paycheque into an investment account in which you have set up a Lazy Portfolio (mostly a diversified basket of exchange-traded funds such as, if I may suggest, the Couch Potato Portfolio).

6) If your job is secure and comes with a good pension (e.g. government, teacher), emphasize equities; if job income is insecure (e.g. commissioned sales), emphasize bonds and other less risky assets (alternatively, dollar-cost average into equities through a PCA).

7) Don’t invest a large part of your financial portfolio in your employer – diversify your portfolio to avoid having too many eggs in same basket

8) Save and invest job bonuses and pay raises.

9) Run your old car on the road longer; pay cash for a new car by contributing regularly to a Tax Free savings Account (TFSA).

10) Multiple streams of income are good; consider REITs as an alternative to owning rental properties and the hassles of being a landlord.

11) Hold fixed-income investments and high turnover mutual funds in tax-sheltered accounts; hold stocks in taxable accounts (except for U.S. dividend stocks because they are not eligible for dividend tax credits).

12) Portfolio management tips: a general-purpose asset allocation is 60% to stocks and 40% to bonds; favor exchange-traded funds and some mutual funds over individual stocks (except stocks with growing dividends), tilt toward small caps and value investments; diversify into foreign stocks; use currency hedging if foreign holdings over 25% of portfolio; consider real-return bonds for inflation protection; reinvest dividends through company reinvesting plans; and so on.


Entry filed under: Personal Finance.

35岁之前要成功的12条法则 Expect these things to happen in following 3 years

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