Life hacks are usually small, resourceful lifestyle changes that can make your life easier, like turning a milk jug into a watering can, or mastering how to fold one of those awkward fitted bed sheets.
But when it comes to your money, the stakes are a lot higher. The right hacks can be worth thousands, or even millions of dollars over your lifetime.
Hack #1: Become unbreakable with insurance
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.
For example, if you’re in your 20s and starting your career, you have your whole life ahead of you to achieve financial security and success. But 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.
Or, if you’re in your 30s and starting a family, you now 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 for your family when you’re no longer able to provide for them.
Alternatively, if you’re in your 50s and looking forward to retirement, what would happen if you were diagnosed with cancer or heart disease? A lump sum payment from critical illness insurance could put you in a better position to pay for the treatment you need and cover your bills while you’re incapacitated – allowing you to focus solely on making a full recovery.
Insurance does not mean betting against yourself or hoping for a big pay day. It means protecting yourself financially so that if something bad happens to you or someone close to you, you won’t go into devastating debt.
Hack #2: Invest to get rich (slowly but) surely
A lot of people have an on-again, off-again relationship with investing. Maybe they dabble in it. Maybe they take a few risks. Or maybe they get burned and recoil.
There are a few types of investment styles – some that work, and some that don’t. First up, there’s “speculative investing.” This means investing in risky things with the potential for a big pay-out. Think penny stocks in companies searching for gold or oil, or companies that are developing unproven drugs or technology. If you’re rich and love the drama of uncertainty, you can be a speculative investor. But everyone else should probably stay away.
Then there’s “mattress investing.” Think low-risk investments like savings accounts, GICs, savings bonds, or stuffing bills under your mattress. The good thing about this type of investing is you can’t lose any money. But since these are slow investments, they may not be the most ideal investments for those who need positive returns to grow their nest egg.
Finally, there’s systematic, long-term growth investing. This 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 while almost never losing money over any five-year period of time.
Speculating can ruin you. Mattressing 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.
Hack #3: Flip the script on debt
From student loans to car loans to credit cards – debt isn’t fun, but it’s wrong to say that all debt is bad. In fact, if you use it wisely, you can make debt work in your favour.
For example, buying a home can be a good kind of debt. It’s true that, historically, homes have not risen in value any faster than the stock market, but that’s without considering the power of smart borrowing. To buy a stock worth $100, you generally need $100. But to buy a home worth $500,000, you’ll probably 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.
And if you buy a home, you should choose wisely when picking a variable- or fixed-rate mortgage. Why? Once again, it comes down to whether you like stability (fixed rate) or slight uncertainty (variable rate). While a fixed mortgage requires you to lock-in with the same rate for years, a variable mortgage means your interest rate will fluctuate throughout your term. However, it’s been shown that a variable-rate mortgage has been more affordable than a fixed-rate mortgage for the last 50 years.
Also, as your property increases in value, you can borrow against it to wipe out those student loans, car loans and credit card debt we mentioned a moment ago. Not only will this reduce your overall borrowing costs, but it can free up more of your monthly cash flow so you can buy the things you need and 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.
Make your life easier
Okay, we’ll admit that none of these hacks are quite as simple as turning a coat hanger into an impromptu paper towel holder. You’ll probably need assistance selecting the right type and amount of insurance, designing the ideal investment portfolio, and figuring out how to secure the best mortgage (and maybe clean up any outstanding credit card or loan debt while you’re at it).
In a semi-perfect world, you’d have a free financial plan that takes care of everything for you in about three minutes. Good thing you found Planswell!