Since the early 1980s, Jonathan Chevreau, the former editor-in-chief of MoneySense magazine and now an editor-at-large there, has talked to Canadians about their money habits. I had a chat with him a few months ago about the worst financial mistakes you can make and the best habits you should start today. With the recent volatility in the market, I reached out again for his thoughts.
Overall, we talked more “don’ts” than the “do's.” But it's pretty simple. First, get into the habit of being frugal. Then get yourself on a good path for retirement. Then, avoid the mistakes that hurt your ability to save: bad jobs, and living above your means. And in a volatile market, most investors should just sit tight.
His most recent book is the US edition of Findependence Day, also available as an e-book.
What should investors do in light of market volatility?
Last week, I suggested meditating, which turned out to be good advice give the rest of the week. (The market rebounded -- ed.) If you’re with a robo advisor and realistically provided your investment goals and risk tolerance at the outset, you should probably sit back and do nothing.
What about people who are worried they're too heavily into stocks or those who are close to needing their cash?
If you were overweight in equities and have big profits in registered plans, you could take partial profits and raise cash, deploying back into stocks if and when stocks get cheaper. If most of your equities are non-registered, you don’t want to trigger taxable events, but could find pairs of winning and losing positions, and raise cash that way in a tax-neutral way -- again, only if you have realized you are too overweight in stocks and overestimated your risk tolerance.
Let’s talk about some tactical moves that people should make to prepare for retirement.
The foundation of a paid-for independence is a paid-for home. In Canada, it’s a no-brainer to pay off your mortgage.
There are a lot of people in the middle, who have some good habits but aren’t perfect. What are some guidelines for us?
So, live within your means. Live below your means by 10 to 20%.
No credit card debt.
Max out every tax shelter.
Pay yourself first.
From your paycheck, set up automatic drafts into your savings account and your RRSP.
Once you pay off your house, divert the stream that was going to the mortgage. Then you’re really starting to cook with your money.
Don’t get sucked into the picking your own stocks. In a bull market, we’re all geniuses. Once the brown stuff hits the fan, that’s when it’s difficult.
What’s the biggest mistake people make?
The biggest mistake is probably being in a line of work that is too unpleasant. You should quit and find something that you can bear doing, so that you enjoy doing it even into your retirement years.
The hours are just too long if you hate what you do. My brother and I used to talk about the Sunday night dreads. That’s a clear signal you’re in the wrong line of work.
There don’t seem to be that many consequences for people who don’t live frugally.
There are consequences. I have friends who just live the opposite way I do.
They ended up in an apartment above a commercial property, living on government pensions. Not much fun. I remember the behavior that led to this. They’d be living the high life. Big restaurant meals every day. They believe in the “Be here now.”
But when it comes to retirement and saving for your future, if you can’t delay gratification, you’re in trouble.
Do you see people turn these habits around?
I’ve seen people go from upper middle class to just above the bread line.
I know a few people, who, if you get them young and early, before the habits are formed, they do OK. They got my book. They tell me: “I’m implementing it.” They were never on the wrong path.
To see Jon Chevreau's bottom line on financial success, visit the Nest Wealth blog.