Life hacks normally focus on small incremental improvements that you can make, such as turning a milk jug into a watering can, or mastering how to fold one of those awkward fitted bedsheets.
But when it comes to your money, the stakes are a lot higher, and the right hacks can be worth thousands or even millions of dollars over your lifetime. Here are three really good ones.
If the world of personal finance was a high school cafeteria, insurance would be sitting alone. It’s so responsible and well-meaning, but nobody pays attention to it. It’s time to stop hurting insurance’s feelings and pause to understand why it’s so valuable.
If you’re in your 20s and starting your career, your biggest asset is your ability to earn a few million dollars over the course of your working life. What would happen if you crashed your bike and couldn’t work for six months? Disability insurance can cover your rent and keep you on track.
If you’re in your 30s and starting a family, you have a spouse and child counting on you. It’s a dark thought, but what would happen if you were to pass away suddenly? Life insurance can cover the bills at a time when your family definitely wouldn’t want any additional stress.
If you’re in your 50s and starting to dream about retirement, what would happen if you were diagnosed with cancer or heart disease? Hopefully you’d make a full recovery. A lump sum payment from critical illness insurance could help make sure your money recovers too.
Insurance does not mean betting against yourself or hoping for a big pay day. It means making sure that if something bad happens to you or someone close to you, it won’t break the bank.
A lot of people have an on-again, off-again relationship with investing. Maybe they dabble in it. Maybe they take a few chances. Often, they get burned and recoil. Let’s discuss some potential investing styles to see if we can understand what’s going on.
First up: speculative investing. This means investing in risky things with the potential for a big payoff. Think penny stocks of companies searching for gold or oil, or companies that are developing unproven drugs or technologies. If you’re rich and love drama, you can be a speculative investor. Everyone else should probably stay away.
Now let’s discuss something we’ll call mattress investing. Think low-risk investments like savings accounts, GICs, savings bonds, or stuffing bills under your mattress. The good thing is you really can’t lose. The bad thing is you really can’t make money either. And that makes these investments wrong for the vast majority of people who need positive returns to grow their nest egg.
Finally, let’s talk about systematic, long-term growth investing. That means slowly but steadily investing a fixed amount of money every month into a diversified portfolio of high-quality stocks and bonds. Over the past century, this method has produced by far the best balance of high returns (nod to the speculators) while almost never losing money over any five-year period of time (nod to the mattresses).
Speculating can ruin you. Mattresses can stunt your growth. Want to save millions for your retirement? Get rich slow by setting up a monthly contribution to a solid investment portfolio and just stick to it.
Student loans. Car loans. Credit cards. Debt isn’t fun, but it’s wrong to say that all debt is bad. In fact, if you use it wisely, it can work for you. Here are three ways to hack it.
One, buy a home. It’s true that, historically, homes have not risen in value any faster than the stock market, but that ignores the power of smart borrowing. To buy a stock worth $100, you need $100. But to buy a home worth $500,000, you only need a $25,000 down payment. And, even though the bank supplies the other $475,000, you still get to keep all the profits from the property. This is called “leverage” and it can amplify the growth of your wealth.
Two, choose a variable rate mortgage. Why? The simple answer is because a variable rate mortgage has been more affordable than a fixed rate mortgage for the last 50 years. A variable rate mortgage means you always get what the current interest rate happens to be. A fixed rate mortgage means you think the bank made a mistake and let you lock-in a better deal. Which scenario do you think is more likely?
Third, as your property increases in value, you can borrow against it to wipe out those student loans, car loans and credits we mentioned a moment ago. Not only will this reduce your overall borrowing costs, it can free up more of your monthly cash flow to buy things you need and to create wealth in other ways.
Debt has two sides to it. As long as you borrow wisely, it can work for you instead of the other way around.
OK, admittedly, none of these hacks are quite as simple as using Doritos for kindling. You’ll probably need assistance selecting the right type and amount of insurance, designing the optimal investment portfolio, and securing the best mortgage rates. In a perfect world, you’d have a financial plan that takes care of everything. Good thing you found Planswell!