1. Spend less than you earn
Rule number one of avoiding excessive debt and always having enough is to spend less than you earn.
To make this your reality, create a household budget. Take a look at where your income goes every month. Identify any places where you could spend less and save more. One way to easily turn this into a habit is to set up a monthly automatic withdrawal from your bank account to invest in your RRSP or TFSA
2. Minimize debt and maximize assets
HNWIs know that too much debt can diminish your financial reach. On the other hand, the best way to get more out of your resources is to own assets that pay back some type of return. So, they tend to buy some assets upfront, for example, paying cash for a new car instead of taking out a loan. Or, they may pay a large down payment when buying an investment property. They will also purposefully buy assets to create an income stream of interest or dividends.
3. Be strategic about tax management
To optimize the money you earn and invest, be sure to claim all the tax deductions you qualify for and take advantage of ways you can enjoy tax savings. This is where you have the potential to save a lot of money by consulting with a financial advisor who understands tax planning and management.
4. Build up ample financial cushion
Many of our high-net-worth clients have six to nine months of their monthly expenses set aside in a savings account. This is an excellent tactic for avoiding debt. If you need money to pay for a medical bill, a surprise car repair, or a new air conditioner for your home, you don’t have to use credit. Knowing you have plenty set aside can also help you make financial decisions confidently.
5. Never stop learning about money
HNW individuals understand the value of knowledge. To help them navigate financial decisions, they may read books, listen to podcasts, and seek advice from qualified financial professionals. Even if you use a financial advisor to help you navigate your financial journey, it’s still worth your time to educate yourself about personal finance and investing essentials.
This article was originally published by Bellwether Investment Management, June 30, 2021