Common sense financial management

When we highlight how over-valued and dangerous most financial assets have become today, we usually hear from at least a few readers arguing that they have no choice but to keep holding and hoping anyway. After all they say, “what’s a poor, desperate for growth and income person to do?” The short answer? Stop setting yourself up to be desperate!

Helpless-victim-thinking is self-destructive.  It’s not wise or rational to toss life savings on the Craps table and pray for a never-ending lucky streak.

Strong and durable financial foundations are not built on reckless bets and big leverage, but on self-discipline and practical steps to improve education, lifestyle, business and management models to become more efficient, self-sustaining and productive: Waste less and save more.  For the pragmatists who are interested in self-help, here are 10 key, actionable components:

A sustainable financial plan with a high probability of success is based on ‘old fashioned’ common sense foundations.

  1. Pay down debt to avoid wasting cash flow on financing costs.

  2. Reduce living costs where intelligent cuts make sense. Buy used and recycle wherever smart.

  3. Work longer. Rather than retire in one’s 50’s, plan to work in some capacity to at least age 65 to cover living expenses and allow longer time to build savings.  We are living longer, plan to work longer.

  4. Concentrated financial risks are something we often have to take in our own business or profession.  When it comes to our savings, the management focus should be on capital preservation rather than blind risk.

  5. The slower growth world is likely to persist for the next several years as debt is paid down and savings rebuilt. During this period, savings return assumptions should assume compound growth of no more than 3% a year (not 8%) in order to avoid consuming or unduly risking capital. That way if higher returns end up being achieved, it will be an upside surprise rather than the opposite.

  6. Non-productive real estate should be downsized and/or reallocated to income producing properties with positive cash flow i.e., where rents can cover expenses and add net income.

  7. Higher education and retraining should be sought through the most cost effective means possible i.e., on line, night school, part-time, co-op programs, bursaries, everything practical that allows students to control expenses, maintain employment and minimize debt while completing an education.

  8. Young people should be counseled to minimize and avoid debt as a life-long goal.

  9. A sharing economy makes it easy and efficient to pool and rent vehicles, properties and other goods where needed, without having to buy and take on individual costs of carry.

  10. Invest in one’s health and energy efficiency to reduce costs for utilities and pharmaceuticals.

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