Saturday, January 30, 2010

The Wealthy Barber

I think everyone should read "The Wealthy Barber" by David Chilton.  It's a book that discusses personal financial planning topics but through an easy-to-read fictional story.  Here are the lessons that I have learned:
  1. Save 10% of your income with a monthly contribution into a mutual fund or some other investment vehicle.  Dollar cost averaging is your friend.
  2. Everyone needs a will.  Get one done with a lawyer.  Keep a complete, up-to-date net worth statement and keep it with your will.
  3. Get the right amount of life insurance to cover your mortgage, car loan, other consumer debts, funeral expenses, dependent's living expenses, childcare expenses, and children's future education costs.  Buy term life insurance and invest the difference.  If you don't have dependents, you don't need life insurance.  
  4. Max out your RRSPs each year to save on income tax.  If you invest in equity, start converting them 5-7 years before retirement into guaranteed investment vehicles.
  5. Home ownership is a good investment for most people.  Take a 5-year term, a 15 year amortization, and pay weekly if you can in order to pay down your mortgage as fast as possible.
  6. A dollar saved is 2 dollars earned.  Thrift is a virtue.
  7. Take advantage of income splitting by opening savings accounts in the name of the lower income earning spouse and contributing to a Spousal RRSP.
  8. Get disability insurance.  If you are covered under a group plan, check to see if it's portable if you change jobs.
  9. Invest in your child's education via an RESP to take advantage of the 20% government grant.  Start converting them to guaranteed vehicles about 3-5 years before your child needs the money.
  10. Have an emergency fund of no more than $5000 and a line of credit that you can draw from if you really need it.
  11. You don't have to worry about your day-to-day spending habits as much if your financial house is in order.

1 comment: