Tuesday, August 4, 2009

Aiki Finances - Accounting on a Thumbnail

Over the years I've dabbled in a few different financial vehicles and scenarios, and have come to a few conclusions that I'd like to share. Please be sure to realize that these are SPECIFIC to me. These rules make me happy, but they are not guaranteed to make anyone else happy (or wealthy, depending on your ambition).
Enjoy, and please feel free to expand them or discuss them as you see fit...

1) Whenever possible, consolidate and eliminate financial vehicles.
  • Do not have multiple bank accounts at multiple banks. Bank with one bank, and if you're unhappy with them, switch to another and close your accounts with the old one. It's okay to separate business and personal accounts, and it makes sense to do so.
  • Don't use "sub accounts" with silly labels like "vacation" or "new car"... Have a chequing account, and a savings account.
  • If a mutual fund is worth buying into, then it's worth committing to. Don't hold different funds in different families or of different intents. Don't have a mix of "growth" and "income" investments - Your life is either about "growth" or "income" - but how can you justify both at the same time? Even on a sliding scale? If you're worried, then only invest in guarantees.
  • Don't have multiple credit cards. Find the one that's best for you, and stick to it. Multiple balances are a recipe for allowing yourself to get out of hand, and to misplace more bills.
2) There is no such thing as "good" debt, only necessary debt.
  • Very few people have the ability or discipline to pay cash for a house, so a mortgage is a necessity for most. School debt is probably the next least evil. After that, you shouldn't be buying things for yourself using other people's money. I can't think of anything that you can put on a credit card, that you shouldn't be able to pay cash for. This isn't to say no credit cards, I think they're pretty handy and now with all of them offering cash back or points, you really need to play their game. I'm just saying never, ever carry a balance unless you're having an emergency.
3) Never replace something simply because it's old. Only replace things that no longer do what you need them to do.
  • Don't be a sap and replace your measley 26" television with a new 50"+ one just because everyone else is. If yours breaks down or the colours are shot or something like that, then fine, buy what suits. But don't just start jonesing for things just because you think everyone else has them.
4) Always try to exercise rationality when making purchases.
  • I own a freezer. It's helped me to make some pretty insane purchases at times, but they've saved me a tonne of money. J.M.Schneider's bacon at $.99 a pound? That's a once in a lifetime price, trust me... I grabbed 50 pounds of it and headed straight to the cashier. Same thing when 520g bars of cheese were $3.33. I hit up about 35 pounds of that stuff without batting an eye. Maybe the clerks give you the greasy eye (mine called the manager to confirm that they didn't have limits - they decided to put them on right after me.) But you can be secure in the knowledge that you will be able to ride on this deal until the next one comes around. I can't remember paying regular price for cheese in the past decade, that's for sure. And, sadly, I doubt if I'll be buying any bacon again after being spoiled for that price. When we bought our car, I looked at the big picture. I didn't see gasoline prices retreating for the long term, so I knew we wanted something that positively sipped fuel, and yet was still dependable and comfortable. We researched a fair bit, and then settled on a Toyota hatchback.
5) Recognize that money is only a means to an end, not an end in itself.
  • Sure, one could probably eke out a few extra $$ here and there by totally gaming the system and doing balance transfers and rotating stocks and analysing every fiscal decision to death, but I feel that anyone who declares that their time is worth money, must be willing to admit that if they want more time, maybe they have to be willing to stop trading so much of it for money. Especially if you are going to be trading hours of time to save pennies. By following a few rules of simplifying, while not actually drastically removing yourself from the world economy, you can greatly decrease the time spent obsessing about your dollar net worth.

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