Building your Pyramid

A few weeks ago I went to a free personal finance workshop put on by Money Mentors. Although I had not heard of the two speakers: Kelly Keehn and Bruce Sellery, they were both very dynamic, engaging and informative. Two Canadian personal finance folks to add to the list to listen to people!

The even was almost three hours long with lots of opportunities for questions, which was excellent.

Some of the most surprising stats from that night:

  • Canadians on average owe 163% of our disposable income- meaning we owe not only all of the money we bring in, but 63% more!
  • 51% of Canadians enter retirement with mortgage
  • 57% of Canadians do not have an emergency fund of any sort

Bruce Sellery introduced a a concept I had never heard about: a priority pyramid. Of course, the very next day I saw all sorts of articles about this concept, so I guess I’m just behind the times, but I think it is very useful to help answer the questions of ‘what do I do first with my money.’ He explains it much better than I would here.pyramid2

The concept is that cash flow is the foundation of personal finance- if you don’t save more than spend, you can never get ahead.

Once you master that, you move up the pyramid to debt, paying off the highest interest first. Some folks would say get rid of all debt here, some make exceptions for low interest or mortgage debt.

Next is accumulate savings, such as an emergency fund, retirement and planned big purchases. I would suggest the importance of these tasks is in the order I wrote them: emergency fund, then retirement, then big purchases.

After that he suggests you maximize tax savings like using your RRSP, TFSA, to your benefit.

Next is getting into investing, tracking their performance and maximizing returns as the very top and least essential piece.

I think this is a great schema or method of decision making. What do you think?




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