The Citizen, 2010-02-04, Page 10PAGE 10. THE CITIZEN, THURSDAY, FEBRUARY 4, 2010.
As 2009 drew to a close, reports of
a likely economic rejuvenation in
2010 grew, and that was good news
for families who stuck it out through
tough times many never saw
coming.
But before diving back into the
investment game, families should
consider the following tips to help
make the most of their money in an
economy that’s not necessarily
guaranteed to recover.
• Keep cash on hand. For many
people, the economic downturn that
began in late 2008 and extended well
into 2009 was a complete surprise.
When caught off guard, be it by an
unexpected layoff or a rapidly
shrinking investment portfolio, a lot
of investors and families realized
they simply did not have enough
cash available.
Now that many families and
individuals are ready to return to
investing, it’s important to ensure
there’s plenty of cash set aside for
emergencies. This emergency fund
should not be invested or used for
daily expenses. Routinely contribute
to this emergency fund as well, even
if it’s only in small increments.
• Invest small. If the recession of
the last year proved anything, it’s
that there are no guarantees when it
comes to investing.
Many people lost their life’s
savings. So when you’ve made the
decision to return to investing, do so
in small increments. Even so-called
"sure things" should be measured
with a grain of salt. A good rule of
thumb to consider while the
economy is rebounding is to ask
yourself how much you’d normally
invest when the economy is healthy,
and then invest a much smaller
percentage, such as one-third or one-
fourth, of that amount.
• Put all your eggs in different
baskets. Where many people got hurt
during the market’s crash over the
last 12 months was to ignore one of
the fundamental rules of
investments: diversification. A
business’s success is contingent on
so many external circumstances that
it’s never a good idea to put
significant faith in any one business
or stock. Spread your investments
around to several stocks to safeguard
your assets. Even if one stock is
booming, avoid the temptation to
sink most or all of your investment
dollars into it.
• Decide on a stop-loss. A stop-loss
is a pre-determined price at which an
investor decides to sell a stock
should it begin to lose value. The
goal of a stop-loss is to minimize the
loss an investor takes on a stock that
does not perform as well as initially
hoped. In a healthy economy, a stock
will likely rebound.
However, as the recession of 2008-
09 proved, in a poor economy no
such likelihood exists. Waiting out a
rebound in a poor economy is not
necessarily a strong strategy, as there
is no guarantee a poor economy, and
subsequently a poor stock, will
rebound. Decide on a stop-loss for
each stock and stick to it.
Thanks in large part to the
recession, more and more kids are
asking their parents about money.
Because the economy has made an
impact in nearly every aspect of
daily life, many kids are curious as
to what’s going on with money.
That curiosity has created a great
avenue for parents to teach kids
valuable lessons about money. The
following tips can help parents
instill a sense of financial
responsibility in their children while
also helping them better understand
the economy.
• Give kids an allowance. Many
parents are on the fence about giving
kids an allowance. However, an
allowance can be a good first step
toward instilling responsible money
management in children. Pay
allowances on a fixed schedule, such
as every Friday afternoon, and make
sure kids have a list of
responsibilities they must fulfill
each week before getting their
allowance. In general, it’s hard for
kids to learn about money if they
don’t have any.
• Give kids some initial leeway.
Kids are kids, and they’re going to
make mistakes when it comes to
money management. In fact, most
kids who receive their allowance on
Friday afternoon will find
themselves penniless by Friday
night. When first giving kids an
allowance, give them some initial
leeway and allow them to make
mistakes. They’re more likely to
learn from their own mistakes than
simply being told how to avoid
mistakes. As time progresses, help
kids learn from their mistakes if
they’re still making them.
• Let kids pay or contribute to a
monthly bill. Another way to instill
financial responsibility in kids is to
give them a monthly financial
responsibility, such as paying or
contributing to one of the monthly
household bills. While this might be
too much for younger kids to handle,
high school kids with part-time jobs
should be able to contribute each
month. Even if parents provide the
money to pay the bills, allow kids a
month or two to pay the bills so they
can see and experience realistic
money management each month.
• Help kids create a budget.
Budgeting is a money management
tool many adults fail to grasp, so
teaching kids how to budget can be
an especially valuable life lesson.
Again, this is a lesson best taught to
high school kids, who have their
own income but need help managing
it. Parents can teach kids that
budgeting involves determining
needs and wants, and how handling
a budget properly can actually afford
them more financial freedom in the
long run.
• Take kids food shopping.
Bringing kids along to the grocery
store can also provide a valuable
avenue to teach kids money
management. This can be especially
valuable to kids about to leave for
college, as they’ll soon be
responsible for feeding themselves.
By taking them to the grocery store,
kids can see how cooking for
yourself is a much more affordable
option than routinely dining out,
which in turn frees up money for
other financial endeavours.
• Encourage older kids to open a
chequing account. A chequing
account can also be an effective way
to teach older kids about money
management. Teach kids how to
balance a cheque book, and open a
joint checking account with your
children so you can periodically
check in and see how your kids are
spending their money. When
receiving a monthly statement, go
over it with your kids and point out
both the positive and negative
spending trends kids exhibit.
Money managing tips for parents, kids
With an economy poised for
recovery, some experts say now is
the time to maximize our savings so
we can reap the benefits when prices
and interest rates start to rise again.
But with less money to spare, it’s
harder than ever to save for the
future.
Etobicoke chartered accountant
Shailendra Jain advises his mix of
clients to be creative and look for
new ways to fund their savings
plans. He shares seven tips that can
help anyone become a successful
saver and responsible money
manager for the rest of their life.
1. Spend less than you earn.
Sounds simple, doesn’t it? Yet we
pile on debt more than twice as fast
as we grow income. According to
the Bank of Canada, Canadian
consumers collectively now owe
$752.1 billion, up 36 per cent over
the past 10 years when adjusted for
inflation. Over the same period
personal disposable income, or take-
home pay, has risen just 15 per cent.
2. Know the difference between
good and bad debt.A low-interest
mortgage on a well-maintained
house in a good, safe
neighbourhood? Good debt.
Charging a flat-out, no-hold-barred
vacation in Hawaii to a credit card
with a 20 per cent interest rate? Bad
debt. Bad, bad debt!
3. Have emergency savings that
are really, truly for emergencies.
You never know when you or your
partner might lose a job to layoffs,
illness or circumstance. Jain says
that in this economy, six months-
worth of living expenses in a secure
account is a must.
4. Get into the savings habit.
People who learn to save when
they’re young are better off
financially as adults, says Jain. Be a
good example and a good parent by
teaching and encouraging your
children to save.
5. Take advantage of
government-sanctioned tax
savings plans.Registered
Retirement Savings Plans (RRSPs)
let you defer income and the taxes
on it to a later time when your
income and income-tax rate is likely
to be lower. In 2009, Tax Free
Savings Accounts (TSFAs) let
Canadians deposit up to $5,000 in a
savings plan or investment vehicle
and keep any investment income or
capital gains associated with that
money tax-free, even when it’s
withdrawn.
6. Resist impulse purchases and
make credit cards work for you.
Credit cards provide us with free use
of money for a short period –
usually two to four weeks. That
money can be used to earn interest,
or at least make our purchases
interest-free. But make it a cardinal
rule to pay off your credit cards each
month. Set up your bills to auto-pay
a few days before the due date and
use no-fee credit cards, unless there
are enough benefits to justify the
extra cost.
7. Harness your latte factor.
Whether it’s shoes, video games or a
five-dollar-a-day coffee habit, we
can all economize a little. Borrow
books and magazines from the
library instead of buying them.
Bring your lunch to work, entertain
friends at home and take the kids on
a nature walk instead of to a movie.
You may find that a brighter
financial future is just the beginning.
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