Notes on Personal Finance

I don’t talk a lot about personal money matters on this blog, but there are folks out there who write about nothing else.  They are generally listed in the “Board of Trade” links section (along with business writers and blogs) in the left sidebar.  The best of the personal finance bloggers, in my opinion, is the fellow from Ottawa who writes Canadian Capitalist.  His posts are generally short but sweet, examining saving and investing strategies for the average middle-class Joe.  Practical, helpful stuff for the investing neophyte and the veteran.

By way of his blogroll I stumbled across another personal finance blog, Money and Investing.  There are a couple of good posts on how to develop a basic savings and investment strategy, known as 10+/10/10 or “paying yourself first”.  The idea is that you chuck 10+% of your income into retirement savings, 10% into long term (or growth) savings, and 10% into short term (or emergency + fun stuff) savings.  Once you have enough to cover 6 months of expenses built up in the emergency reserve, you can redirect the remainder to growth and save even more.  This is the strategy I generally try to employ (although I have not always been able to do so).  These days I am able to put 18% into RRSPs, 10% into long-term savings, and 10% into short-term savings while maintaining emergency savings of 6 months salary.  And no, I don’t make a six-figure income, but I did have to pay down debts and make some occasionally painful budget adjustments to eliminate a lot of unnecessary spending.

Another interesting Money and Investing post is about class distinctions, i.e. lower, middle and upper.  As he says:

“I almost laugh every time someone says that they or someone they know are ‘Upper Middle Class’.  I wonder what they really mean with that.”

He goes on to say that there are effectively no intra-class distinctions, like lower middle versus upper middle; everyone at pretty much every strata of society can afford some luxury items (i.e. TV, Nike shoes, iPods, etc).  The real difference between the class strata is their approach to wealth management.  The poor cannot put a roof over their head, clothes on their back, and food in their belly even with maximum effort.  The middle class can cover basic expenses via work and generally only frets about the amount and type of luxury items they can afford.  The rich can cover expenses indefinitely and concern themselves with preserving wealth for succeeding generations.

“I prefer to keep the labels to real needs. Either you can survive or
you are in peril (Middle vs. Poor). Either you worry about how to live
today or you are at a stage in which you worry about how your
descendants will enjoy life in the future (Middle vs Rich).”

I think that’s a pretty sensible approach to it all, and any difference between supposed lower or upper middle classes is really just a matter of how many toys one can afford while still being short of the holy grail of financial independence.

Category: Finance
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3 Responses
  1. DirtCrashr says:

    As soon as I went to work at a company with a 401k I started socking the max into it, up to the company’s top-matching amount. I had to have it taken out before I could get my clutches on it, and once that was done it was easy to live within my means – easier than exercising the discipline of self-funding mainly because I hang so tight to money in-hand I wouldn’t want to move it.
    I really don’t know anybody who goes around with the class-structure model filtering the world anymore. It just seems like archaic 19th Century rhetoric. “Poor” people around me tend to have things I don’t even have, video games, cell-phones, and wide-screen TV’s. I can’t qualify them but that IMO they make poor decisions and have low standards, but I’m not impressed by the “rich” either with their Ferraris and Bentleys – they’re both self-indulgent and petty groups with spoiled offspring, the lines are blurred on a matter of scale.

  2. Chris Taylor says:

    Same here, DirtCrashr. Very first “real” job I got, I started socking away the maximum in RRSPs and the employee stock purchase plan. Right now the Firm deducts 18% for the RRSP and 10% for non-registered savings, which prevents me from blowing it all on mindless impulse buys. The only thing that depends on my own self-discipline is socking away the additional 10% for short-term savings. And knowing you can spend the short-term stuff once a year (on something worthwhile like a vacation or a big-ticket item) makes it easier to motivate yourself to save.
    The thing I found fascinating about the fellow’s take on low/middle/upper class is not the ability to rate people on the scale, but the attributed attitudes to wealth management. Whether they are generally true or not, it does give one considerable food for thought in managing one’s own affairs.
    To this end Wanda and I have recently made some major realignments in our budgeting so that we are saving more. Although our housing expenses have risen slightly, we have offset it through dramatic reductions in transportation expenses (living close to the subway is a big, big help). The biggest thing was paying down debts, which was eating a gigantic 26% of net income. Getting the debt monster under control freed up a lot of budget room for other business.

  3. Thanks for your kind words about my blog. I totally agree with you that maximizing RRSP contributions and an accelerated mortgage (or debt) paydown are the keys to financial success. Of course, any extra savings are a bonus.