Budget Sense

Image this: your wealth is in excess of $100 billion, but instead of enjoying your money and travelling from country to country, hopping from island to island, you instead spend most of your time reading books. 500 pages minimum to be exact! If you haven’t guessed it yet, we are talking about Warren Buffet, who believes that knowledge, just like money, compounds everyday. If you care about building your wealth and being financially free, then reading it vital. Reading helps you connect the dots, generate new ideas and unlock potential that you didn’t think was possible. And if you are already into reading, there are always better and more efficient ways to get the most of out books, so that what you read will be retained and useful for a long time in the future. We have all read books and may not remember much from them. We need to change that and it starts by following these tips below:

Use a Kindle or any other E-Reader for easier referencing and note taking
Using an E-Reader like Amazon Kindle makes your reading much easier, and in a number of ways. First off, it makes it much easier to search, something that is done manually and takes a long time on a paper book. E-Readers also help you make highlights and your own notes to important passages in the book, and easily refer back to them later. E-Readers have other benefits and we have already wrote about that in a previous article.

Take at least one idea from a book and set an intention to apply it
While reading a book, you will come across different ideas, advise, tips, hacks and techniques. As it may be hard to remember or apply all of them, set an intention to focus on one good idea and apply it to your life. For example, after reading the book “Own the Day, Own Your Life” by Aubrey Marcus, I took 3 ideas and started applying them for a better start to my morning: drink water, get natural sunlight and do some movement. I have been applying those daily and they help a lot, considering that I work from home most of the time. Alternatively, before starting a book, determine what you want to learn from the book and what you hope to gain. This will help you stay focused and identify the most relevant information.

Read other people’s reviews and compare notes to spot common themes
One of the things I do when reading a certain book – either before or after I finished reading it – is to read online comments and book reviews to gain insights and common themes from other readers and compared to yours. If you see a common theme repeated by other readers, then take some time to focus on that and expand on it to gain more insights. You can also use online resources to seek clarity on concepts in the book you are not sure about to see how they define or approach it. And last but not least, you can get entire book summaries and key points by searching through Google images or Pinterest.

One done, Reflect and summarize
After finishing the book, take some time to reflect on what you’ve learned. Think about how the information can be applied to your situation and how it can help you reach your goals. For example, if this was a finance book, summarize the key points in your own words and what you can do to apply it to your situation. If the book is stressing the importance of regular payroll contributions to a saving or investment program and this is something you don’t already do, then start taking the first step to make that reality. One simple decision taken based on what you read, could provide huge returns and benefits in the future.

We can’t claim that all successful people made it to the top by reading books. But you can also bet that most of them did. There is a famous quote that says “Not all readers are leaders, but all leaders are readers” . There is also another variation on this from one of my favorite podcasts ‘Read to Lead Podcast’ by Jeff Brown, that goes “Readers are Leaders and Leaders are Readers” and Mr. Brown has a habit of starting and ending every podcast episode with this memorable and fitting quote. So start getting into the habit of reading, and ensure you get the most out of it by applying the tips above. Before you know it, reading will be making your life better, richer, healthier and certainly wiser.

If you got a refund on your income tax filing this year, congratulations, but now the important work begins: what to do with this money and how to budget it? Obviously, different people will have different ways of using and allocating this money, but generally speaking, there are better ways to use it than to just spend it all on a vacation or purchasing big ticket item etc. Also, the amount of your refund is also a big factor in what you do with the money; if your refund just around one hundred dollars, then save yourself the budgeting and all the thinking and just spend it any way you like, since it is an insignificant amount. On the other hand, and this article is based on the assumption that your refund is couple hundred dollars or more, then read on to help you get ideas on what to do with the refund:

Roll it over to your RRSP to get another refund next year
This would be the first and best use of any refund money. Depending on your situation and the amount of refund you got, you may redirect some or all of the money to your RRSP, and that in turn will generate another – or bigger – refund next year. This also accelerates your retirement nestegg, especially if you started saving a bit late.

Pay down debt
For some, this may be the bigger priority over their RRSP savings and that is totally understandable. If you have a big debt and got a big refund, then it makes sense to dedicate most if not all of your refund towards paying it down. On the other hand, if you only have a small debt left (say $1000) and your refund could cover all of that, then it is easy to figure out that you should use your refund to get rid of this balance.

Save it towards a big purchase or goal
Again, depending on what you are saving towards, whether there is something specific or just general savings – including building an emergency fund – rather than spending the money, best to save it and feel good about yourself. This is a way to help you look back in the future and have something to show for your hard work. In fact, assuming you get refunds that are $1K or more, and assuming you save even $250 of those each year, in couple of years, you have saved over $1K without much effort

Donate to a charity
This is something not a lot of people think about, but you should contribute a portion of your refund to help a charity: you get to help and feel good, while also getting a tax deduction: two in one!

Last, and certainly least: spend and enjoy it?
If, and this is a big if, you happen to be a lucky person who has no debt, has enough money saved and has maximized their RRSP contributions, then by all means go ahead and enjoy the money, be it to buy something new, book a vacation, or other ways that are specific to you and your lifestyle.

As mentioned, while some may prioritize their RRSP savings or paying down debt, at the end of the day, some combination of the above is the best way to go. Once you know what your refund amount is, sit down and spend some time going over what the money will be used for, and write it all down. Then come back to it a few days later and review the list again, to avoid the chance of forgetting any important item. Once you have confirmed how the refund will be divided, go ahead and take action by distributing the money accordingly.

In your journey to financial success and wealth accumulation, you will eventually come to realize that saving money alone is not enough. To take your money to the next level, you need to start investing. Investing is simply the act of putting your money into a business or asset for some time, in hopes of getting a bigger return in the future. While it is similar to keeping your money in a savings account, there are two major differences: the returns with investments are potentially bigger, but there is also risk involved, where you can make significantly more money than in a savings account, but could potentially lose money. With a savings account, while the returns may be smaller, your money is guaranteed and there is no risk of losing it.

If you want to take the next step towards financial independence and want to start investing, here are a few things to consider and keep in mind:

Decide on your goal from investing: is it to make more money? is it to diversify your sources of income? or is simply take you to the next step towards better wealth accumulation.

How much to invest : as a beginner, best to start with a smaller amount, until you feel more comfortable and have better understanding of how things work

Where to invest : another consideration is which bank or discount brokerage to use. There are various websites and tools online that compare various discount brokerages, and while transaction fees should be a priority to consider, there may be other factors to play when deciding on where to do your investments (and maybe trading)

What to invest in: last but not least, you need to consider the type of investments you will be purchasing. While stocks (also known as equities) are probably the first thing that comes to mind, there are other assets to think about such as REITs, ETFs, commodities, FOREX, Crypto, bonds, mutual funds and more.

It is safe to say, no billionaire – and most millionaires – would have reached their level of financial success, without some form of investment. Investment doesn’t have to be about stocks or mutual funds, and may include buying land, investing in a business, real estate etc. But as a beginner, and to get your feet wet, best to start with a small amount that you are comfortable with and one that you wouldn’t mind lose some or most, and buying into one or two stocks and mutual funds.

Albert Einstein once said “Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn’t, pays it” . If something has the backing of arguably one of the smartest people in history, you can surely trust it!

Compounding is the process whereby interest is addedto an existing principal amount as well as to interest already paid. We have heard of something called ‘tax on top of tax’ which governments may annoyingly do at times. Compounding is similar to that but in our favour: it is effectively interest on interest.

Compound interest is when you add the earned interest back into your principal balance, which then earns you even more interest, compounding your returns. For example, Let’s assume you have $5000 in a savings account that earns 5% in annual interest. In year one, you’d earn $250, giving you a new balance of $5250: by next year, you will earn interest on this new amount of $5250 and so on. Before you know it, your money has magically gotten much bigger than what you started with, especially if you give it enough time to grow exponentially.

You may have read the example of a penny that doubles every day to become worth over $5,000,000 by day 30. While that is an extreme example, the lessons here are applicable: that compounding + time , ends up doing wonders to your money.

Compounding can also be thought of in terms of dividend reinvestment plans (DRIP) where money earned from dividend income is reinvested to buy more shares which in turn end up buying more shares and so on.

At the timing of writing this article, savings interest rate are at an almost decades high, with some banks paying 5% or more for certain savings or GIC accounts. So putting $10K in a savings account with such a rate will give you $500 in one year and you can then reinvest that amount and in one year from then (assuming the same 5% rate) you would get $525 on that $10500 for a new total of $11,025. So using compounding, you turned $10K into $11K and change in just two years! Now imagine if you had more money and have more years to leave it there. For example, if you leave your money in the bank for 5 years, and earning the same 5% interest rate, you would get close to $3K extra or $12,762.82 to be exact.

Compounding is a great tool to use on your road to wealth and financial freedom. It is effortless and it helps that we are now at decades long historical highs for interest rate paid by the banks. So put it all to use and reap the benefits in just a few years.

We have all heard of popular sayings and expressions like “Win Win”, “Two birds with one Stone” and other similar ones. The idea here being that we should be more efficient in life, careers, finances, by doing more with less. In other words, use one hand to do two different things and 2 hands to do 4 things and so on.

From a financial and personal growth prospective, this is about doing more in less time, thus stretching one valuable and finite resource that we all want more of: time! If we are time-stretched and since we can’t create more of it, why not do more in the same time it would take you to do one thing? In fact, we can go even further and do multiple things at once, thus making it a win-win-win proposition. Compounded over time, you are effectively freezing or even creating your own time, since the alternative would have cost you a lot more in terms of how long it will take. Some of the personal examples below may not seem as obvious as they seem simple and obvious enough, but they are powerful and add up over time. In fact, as you go over them, you will realize you may already be doing some of these.

Staying home is a win-win-win proposition for me. I save on gas. Save on eating out. Get to study or read. The alternative is driving my car, where I am not only wasting gas, but also putting my mileage on car. Of course, there are these times when you want to go out to change scenery and that is fine once in a while.

Another example is when I go out for a walk, I am also learning by listening to podcasts or audiobooks. That is, I am doing personal development and learning, while improving my health by walking. This is something millions do on a daily basis, but may not have thought about the win-win benefits they are reaping.

Multiple incomes: In his book “The 10 Pillars of Wealth” ,Alex Becker argues that we need to separate our time from income if we are to become wealthy and have a lot more money than our 9-5 job can provide us with. In other words, just because we only have 24 hours in a day (2/3 of which is spent sleeping and socializing) doesn’t mean we are limited to making money in only those 9-5 hours. We have to have our own ‘Entrepreneurial hours’ where we have to pursue secondary side income, regardless of time of the day. This can come in the form of passive income that doesn’t require a lot of our time (dividend income, rental properties, online gigs, book sales, Youtube ads etc) .

When I did Uber as a side gig a few years ago, I would use the time between rides to listen to podcasts and audiobooks. In fact, I used the the idle time to study on my E-Reader for a technology-related certificate I was working on. This is an example of exploiting the time to do one profitable endeavor in order to do something else: perfect win-win example. The alternative would have been to sit idle between rides or listen to the news, and gain nothing in the end. And in fact, I ended up obtaining that certificate and that helped me with my career development and advancement.

To some of us, when we think of win-win, we think more along the lines of business. For example, a fairly negotiated deal may create a win-win for both parties. And by the same token, win-win may work between individuals, directly or indirectly. For example, if I make a charitable donation – with the first and true intention being to help others – only will I help others, I may also get a tax deduction as a result. The tax deduction is a by-product of the act of kindness and not the main intention, but it still creates a win-win situation.

While creating these win-win situations is great, there may be some limitations we need to manage or overcome. For example, for most, it is the inability to multi-task and the need to focus on one thing at a time. In fact, I am one of those strong proponents of focusing on one task at a time to ensure it is performed to perfection and no distractions. But most of the examples above involve one active task with another passive one in the background. While one task requires our full attention (e.g listening to an audiobook) , the other task may only require passive or subconscious attention (e.g walking) .

If you always think in terms of win-win – or triple win – you will exponentially improve your life and in a lot less time than the alternative. When doing an activity or task, think about whether you can make it a win-win proposition.