Lumbergh agrees! The first 40 rules.

Hey, here's the first 40 of Ryan's Money Rules.

Rule #1: The Power of Compounding - Earlier is Waaaay Better!
Rule #2: "Lotteries are taxes on the stupid"
Rule #3: Defining Assets and Liabilities
Rule #4: Never Carry a Credit Card Balance... Ever!
Rule #5: Know your Monthly Expenses!
Rule #6: Forget the Latte, Its the Car/Vacation/Renovation Factor
Rule #7: Maximize income in AFTER TAX money

Rule #8: Your Home is not an Asset
Rule #9: Spousal Financial Compatibility is VERY important
Rule #10: Thumb your nose at the Joneses

Rule #11: Dividends - Buy Stocks for the Cash Flow
Rule #12: Use Leverage for MORE positive cash-flow!
Rule #13 Take Accountability. Stop Whining! Go Read a Book already
Rule #14 Live on one salary
Rule #15 Don't try to "Beat the Market"
Rule #16 Plan on Financial Independence without CPP
Rule #17 Save/Invest ALL windfalls or bonuses
Rule #18 Don't Diversity... too much
Rule #19 No Fixed Income
Rule #20 Set Financial Goals

Rule #21 Chart your Progress!
Rule #22 Pay your bills on time.. Every Time!
Rule #23 Automate all Monthly Payments
Rule #24 Borrow money for things that appreciate, pay cash on things that depreciate
Rule #25 Live like a student as long as you can
Rule #26 Create/Develop Multiple Income Streams
Rule #27 No Financial Advisor
Rule #28 Pay No Bank Fees
Rule #29 Talk about money. Ask about money.
Rule #30 Live where you Work, Shop and Play

Rule #31 Out of Chaos comes Big Opportunities. Be Ready!
Rule #32 Take Full Advantage of Employer Matches
Rule #33 Don't spend all of that salary increase
Rule #34 Find Yourself a Money Mentor
Rule #35 The Main Goal is Financial Independence, Not Retirement
Rule #36 Owning a good company is are better than working for one
Rule #37 "Hedge" against price inflation by investing in staples you use
Rule #38 Use good debt wisely, get rid of bad debt completely.
Rule #39 Adopt an Entrepreneur/Investor mindset
Rule #40 One week wait time for impulsive purchases over $100

Plus there's these two gems:
Dividend income growth... 16 months in review
Buy vs Rent. Why we're okay with renting today

Rule #27 No Financial Advisor.

”Everyone has the power to follow the stock market. If you made it through fifth grade math, you can do it.” – Peter Lynch

We had a financial advisor that came highly recommended from a fairly high-net-worth friend of ours.  We gave him a try for a couple years and it didn't work out. We lost significantly more money than we made, and then on top of that paid this person 1.5% of our portfolio value each year to manage our money.  I'm not a fan of paying someone to lose me money.  I can do that myself for free.  We've since moved on to an investment style that's a better fit for us and doesn't require a lot of "management" on either our side or a "professional's" side.  I'm not philosophically against Financial Advisors in general and it would be wrong of me to say anything bad about them based on our experience because we have only had one in our lifetime and it was at a time when the economy was moving into a recession.  With that said, for our investment style, paying for an FA for portfolio management is not a good deal.  Our style is to buy solid blue-chip stocks that pay safe and growing dividends and then hold them forever.  Because our plan is to buy the stock once and hold forever the only cost we incur is the commission price to buy the stocks in the first place.

If you have the confidence to go it alone, and I am not making any recommendation here that you do that, there is a lot of information on the web to help you build a solid portfolio on your own.  A basic "couch potato" style portfolio can be constructed fairly simply and get you similar returns to one a FA will build for you with minimal Management Fees.  Many FA offices are however great for offering one-stop shopping for many other types of financial instruments such as life insurance, estate planning, tax planning, purchasing annuities etc.  We got our life insurance from our FA and we feel we got it at a reasonable price, but thats not enough reason to woo us back to letting them manage my investment money going forward.

Here are the main reasons we dont use a financial planner:

1. I need to know where my money is and what its doing at all times - this is more about me and not about the advisor.  I generally don't trust others to look out for my best interest... I believe that is my job.
2. I don't believe in across the board diversification in our portfolio... so that rules out many mutual funds or ETFs.  I like to invest in what I understand. Investing in big diversifed funds makes it difficult for me to understand whats going on.
3. Most Financial Advisors do not outperform the market.  There have been lots of studies done out there that suggests that upwards of 70-80% of advisors either match the market or do WORSE.  (as stated before beating the market is not my goal anyhow but I threw this in because it matters to most people)
4. Management fees slowly erode your portfolio value.  Many Advisors charge 1-2% management fees over and above any fees the mutual funds themselves charge you.  Compounded over time this melts down your profits.
5. Most Advisors dont get paid based on the performance of your portfolio.  If your portfolio loses 10% in one year, they still get their management fee.  
6. Many advisors work for a company that restricts the products they can sell you.  You could argue that they are essentially salespeople for the products they sell.  Try going to an advisor who works for Company X and ask to buy mutual funds from Company Y.  Most won't or can't do it.
7. I know what I want to be invested in and what investment vehicles I want to stay clear of.  It makes no sense for me to go to an advisor and tell them what to buy for me.  The feeling is probably mutual.  I would think people like me would probably drive Financial Advisors nuts!
8. Our investment style doesnt' require 'management' or annual 'rebalancing' so why pay someone else to do it? 

In short, I don't think hiring a Financial Advisor is good value for us.

There are other reasons to be cautious about when giving your money to FAs but those would involve discussing things like "fiduciary" responsibilities etc, which I would prefer not to discuss here.... but I would add this: Some Financial Advisors do not put your interests first, and some do.  Stay away from the ones that do not.

Now these are the main reasons I prefer not to use a Financial Advisor.  I'm also a bit of an anomaly because I have the time, energy and keen-ness to do my own research and the confidence to buy and sell my own stocks.  If you don't have the time, energy or keen-ness to do all the work on your own, or to pull the trigger when it comes time to buy or sell stocks, or you need some hand-holding when the market is correcting, then a Financial Advisor might be in order.  I know a few who do a good job and will be upfront with you about how they get paid, what you can expect from them by dealing with them, and are quite open to challenge.  If you do go to a Financial Advisor, make sure you ask lots of questions around how they get paid.

The biggest challenge I have for others is: Is the cost of an FA worth it to you once you know: how they operate, how they get paid, what products they can and can't sell you, what incentives they themselves have to recommend you buy/sell a product, and how much time / desire you have to work on these things if you were to do it yourself?  If after you've addressed these points and you still prefer a professional to manage your money, make sure you get a good advisor - one who looks out for you interests.  If you do go it alone, make sure you are comfortable with your own abilities, understand your risk tolerance and have the ability to manage that risk.  We have found it to be quite financially rewarding. 

Rule #20 Set Financial goals

Goals in writing are dreams with deadlines - Brian Tracey

Do you have financial goals?  I just finished Millionaire Upgrade by Richard Parkes Cordock - a great book by the way - and it reminded me of one thing that we have found to be very important for our progress towards Financial Independence and that is:  Setting Financial Goals.  One quote from the book is "A goal without a plan is a dream".... I'm going to memorize that line because I think its a great line.  Back to us... Every year, we set or revisit goals for our annual investment cashflow growth, goals for our savings account, goals for debt reduction, goals for RRSP contributions, and goals to reduce our spending (cut the fat).

For us, there are three things you need to have figured out before you can call your dream a goal:

1. What do you want to do with your money?  Do you want to become a mulit-millionaire or do you just want live a minimalist work/debt free lifestyle?  Do you want to work part-time halfway through your adulthood or full-time til you kick the bucket?  Do you want to go an a big vacation this year?  Saving for a new car?  Is your goal to reduce debt or become debt free?  If you don't know what you are saving for, you are almost surely destined to fail.  While you could argue the why is just as important as the what, I think the what is probably the thing to keep posted on your fridge as a motivator.  
2. Why do you want to do this with your money? Here is the deep soul-searching part of having a goal.  Are your goals inline with your values?  Do you want to work til you are 75 or are are you trying to leave the workforce as soon as you can so you can do other things?  Do you really really want what you are saving for or are you doing so because you feel its what you should do?  For us, we like to be in control of our lives.  We want to leave no debt to our children and we dont want to be a burden on them as we age.  Thats why we choose to invest and save the way we do. We want to be good role models to our kids and walk the talk.  That is the Why for us.
3. How are you going to get there?  Here's the part where you need a plan, or your goal is just a dream.  This part is where you discuss or ponder the sacrifice you are going to make.  Thats right, financial planning involves sacrifice.  Are you going to manually save that money or have it automatically deducted from your account to make it easier?  How much do you need to save? Are you going to increase you income, or decrease your spending to meet the goal.  Will it be a monthly contribution or a once a year event (like at RRSP or tax season).  If you have a spouse, how will you keep this all straight?  Will one partner keep track or do both need to be involved?  

Your goals obviously need to be realistic, but we like to have stretch targets that may be reachable but require some additional sacrifice or creativity.   We assess and set these goals usually around New Years and revisit them at tax-time in March.  Then, we do what almost nobody does... we write it all down.  Thats right, we write it down every year.  There is a saying in the Geologist Community that goes: "A map is just a sketch until it is coloured" or "A map becomes truth once you colour it in".  For us, its the same thing about goals - writing them down makes that goal more official... not just some talk we had over coffee.  Some friends of ours think we should lighten up over this point, as if we're kooks for treating our goals with this kind of official discipline.... but there is never an argument in our house over what we are saving for.  We are always on the same page because the goal is there for us see.   We are committed to it.  We have personal financial goals and we have family financial goals.  We both know what they are and are both commited to those goals.

We've had this approach to setting financial goals for about 10 years and we've missed a few yearly targets, but its not because of lack of trying.  The odd expense has come up that we weren't expecting that threw us off.... but it actually led to us creating an emergency fund as one of our goals the following year.  After doing if for 10 years, we are better now at setting those goals and it has become significantly easier to meet or beat them.

Some of our past goals were:

Max out our RRSP when it makes tax-sense to do so.
Grow our Investment cash-flow by 8% per year
Build an emergency fund in case the car craps out and we have to buy/fix
Pay off our non-tax efficient debt
Save up enough to buy a new bicycle.

The last aspect around having a goal is about executing point #3.  Executing point #3 relies on how committed you to points #1 and #2.  I think its pretty self explanatory from here on so I won't bother you with motivational speak.  Either we follow through on what we say we are going to do or we do not.  Having serious and reasonable goals, and our ability to follow-through has been perhaps the most important thing for our personal finances.  For our age cohort, we are in pretty good financial shape, and I credit a large part of that to having achievable goals and executing the plan.  Do You have Goals or do you have Dreams?