The Motley Fool

Never Run Out of Money Again

Money can’t buy everything. At the same time, one cannot live without money. After all, our basic needs such as food, clothing, and housing all require money.

To make sure you never run out of money, here’s what you can do.

Never use up your paycheque

Some people end up eating instant noodles at the end of the month because they’ve used up their paycheque and they have no savings. So, the bottom line is to never use up your paycheque.

Start by saving $50 each month. Then slowly work your way up towards saving 10% of each paycheck. If you can save more than that, that’s even better.

Invest your savings

The stock market gives long-term returns of 7-10%. If you don’t want to learn about investing, talk to your financial advisor to decide which exchange-traded funds (ETFs) to buy. ETFs cost less than mutual funds, but both hold a basket of holdings.

Make sure you know what the ETFs hold. For example, check out their top 10 holdings and see if you like them.

Then over time, dollar-cost average into multiple ETFs each month. Ideally, the top holdings of the ETFs shouldn’t overlap.

Automate the process and pretend that you’ve stuffed the money under the mattress when you invest in these ETFs. In the long term they will become your retirement savings.

If you’d like to invest in individual stocks, start with quality businesses with strong balance sheets. They’re recognizable with S&P credit ratings of BBB+ or better. The higher the rating, the stronger the balance sheet.

For example, Toronto-Dominion Bank (TSX:TD)(NYSE:TD) has an S&P credit rating of AA-, and Fortis Inc. (TSX:FTS) has an S&P credit rating of A-. They also yield at least 3.8%, so you get income while being a part owner of these top businesses.

Emergency fund

Lastly, having at least three to six months of emergency funds locked in a bank account gives peace of mind. Unexpected events can happen in life. You don’t want to have to sell your investments when something unexpected happens. After all, the stock market goes up and down, and it’ll be painful if you have to sell a portion of your portfolio at a loss due to an emergency.

In summary

Always save from each paycheque. Build a sufficient emergency fund for you and your family. Buy quality ETFs or stocks with your savings by dollar-cost averaging into them over the long term. Before you know it, you’ve started building your nest egg, and you’ll never run out of money.

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Fool contributor Kay Ng owns shares of FORTIS INC and The Toronto-Dominion Bank (USA).

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