In this article, we will look at the main three ways of using one’s money and how to manage it efficiently:

1. Spending

Spending is indispensable and let us be real, our only way to survive. We must spend part of our earned money to pay our rent or mortgage, pay our food, clothing, live comfortably, etc. However, today’s society is mainly axed into a consumerist culture. Although there will always be extremists, most individuals remain somewhat conservative spenders, allowing them to make better use of their hard-earned money. When it comes to spending, it is best to pay for essentials first and be strategic when it comes to superfluous items. There is nothing wrong with wanting to enjoy your money, nevertheless, by setting a budget each month for these extraneous expenses and keeping that portion under control will allow you to be more successful.

• Saving

The second way of utilizing one’s money is to save. Most Canadians understand the importance of setting up a savings account at the bank and contributing to it on a regular basis. In case of emergency, having savings can help you overcome any temporary loss of income or allow you to realise a short-term goal such as buying a car or even a vacation package. However, when it comes to saving, it is important to understand that there are two variables called inflation and gross domestic product (GDP), which affect your cash savings. Gross domestic product (GDP) is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period[1]. On the other hand, inflation is the variable that influence consumer prices and therefore your purchasing power overtime. For example, in 2002 (CPI) the Consumer Price Index gave our Canadian dollar the monetary standard value of $100, in 2020, to benefit from the same purchasing power as in 2002, it is necessary to have $136.80.[2] In the long- run, GDP increases through inflation. This can simply be explained by the fact that our national and world’s population keeps growing, we consume more through the purchase of goods and services, and ultimately, the prices of the latter increase. In shorter terms, what you used to be able to buy for 1000$ in 1980, you would need 3109$ in 2020. Therefore, by keeping all your money in your bank account, over the years, you are losing value, because the cost-of-living increases with inflation. Consequently, your $1,000 saving held in a cash account buys you less and less over the years.

• Investing

The third way of using your money, and, you probably have guessed it, the one I prefer is investing it.  This approach is the most proactive because it allows you to increase your money. When considering investing, I strongly suggest meeting with a licensed advisor, such as Flavio and myself, who will perform a financial needs analysis and design an investment plan specific and detailed to your needs and in accordance with your accounted risk tolerance and time horizon. Diversification should also come into place when creating your investment portfolio. Ever heard of the expression ‘do not put all your eggs in one basket? Well, diversification is exactly this: a risk management strategy that involves using different types of financial products such as fixed income, equities, cash, and equivalents to limit the exposure to a unique category and risk.

[1] Investopedia, Gross Domestic Product. https://www.investopedia.com/terms/g/gdp.asp.

[2]  Statistique Canada, Indice Des Prix à la consommation mensuel, non désaisonnalisé, sommaire (1971-2020)