My 5 Most Important Money Lessons

Over my 33+ years on the planet, I’ve spent more time than I’d care to admit thinking about money. I’ve thought about earning more of it. I’ve thought about investing it. I’ve definitely thought about spending it.

And after all those hours, I realize money isn’t really that hard. In fact, all people really need to do is follow a few basic rules and they’re already 90% of the way to becoming wealthy. Yes, I realize these things are hard, but it’s not the concepts that are hard. Implementing them is the tricky part.

These five financial rules are as simple as they get. And yet, they’re still incredibly powerful.

Spend less than you earn

I’ve read stories about probably thousands of early retirees over the years, and there’s really only one thing they all have in common. They were really good savers.

Some made their money by investing in a broad portfolio of stocks. Some loaded up on one company, riding it to riches. Some started their own company. Others did it through real estate. And so on.

A high savings rate and the desire to take on risk is the only thing separating an early retiree or financially independent person from the rest of us.

Big wins

Much has been said about the Latte Factor, which personifies an important personal finance lesson. Little costs really have a way of adding up over time.

But they don’t matter nearly as much as the big stuff. Bank fees are a great example. Yeah, it stinks paying $5 or $10 in bank fees. If you can avoid this, it’s probably a good idea. But there are far bigger things to be concerned about.

Take your mortgage as an example. If you pay 2.75% instead of 2.5% on a $300,000 loan, that’s an additional $750 a year.

$750 buys a lot of bank fees.

Focusing on these big wins is far more important than the little things.

Pay down debt

Even though interest rates are lower than they’ve ever been, I still maintain paying down debt is a great investment for many people.

Not only does paying down debt offer a guaranteed return (unlike stocks, which can be extremely volatile), but it also offers a psychological boost. There’s nothing that beats the feeling of paying off your student loan or burning your mortgage.

There’s one other benefit to paying off debt too, and that’s increased cash flow. When you don’t have hundreds of dollars leaving your account each month, you can really supercharge your other savings goals.

Low expectations

What separates people like us from the proverbial Joneses, those neighbors who need to have the latest and greatest thing?

I think it’s low expectations.

Folks who care about getting ahead haven’t just valued security over possessions. They’ve also successfully lowered their expectations. Instead of desiring everything, they only lust for a few things, making due with what they already own.

By having this attitude, folks who are happy with what they have don’t need to spend money. So they don’t, further adding to an already inflated savings rate. Good things happen, and the next thing you know, they’re financially independent.


Every good financial plan needs to be simple. Without an easy to execute plan, things go sideways. And when things go sideways, goals don’t happen.

Some finance nerds might want to pore over spreadsheets and income statements all night, but most of us would rather go golfing instead. So when investing, stick your cash in a simple ETF portfolio and leave the details to the folks on Reddit. Or when coming up with a savings plan, simply pay yourself first and let the rest of the details work themselves out. And so on.

Choosing a simple plan will increase your likelihood of following through, which is the ultimate goal.

That’s about it

Finance doesn’t have to be complicated. Just remember these five important lessons and you’re already 80% of the way towards getting your finances in order. All that’s left is to execute.

Should You Ever Buy a Mutual Fund?

The argument for buying ETFs is a pretty easy one. Because of lower fees and products that track the index instead of trying to beat it, ETFs as a whole do better than mutual funds.

Sure, the argument goes, a fund manager could beat the index–at least in theory. But over the long haul, any skill the manager might have gets eaten away in fees and something called window dressing. Basically, a fund manager doesn’t want investors to know they own dud stocks. So those stocks get punted out and replaced with sexier names trading at higher prices.

Buying high and selling low isn’t really a good recipe to investing success.

However, after saying all that, I won’t completely write off the mutual fund industry. There are a select group of funds have been terrific investments over the years and should continue to outperform the market going forward. Yes. Really.

These funds aren’t easy to find, but they do exist.

Becoming a good mutual fund investor

There are certain types of investments that benefit more from active management than others.

Take the world of small-cap stocks as an example. Many people follow Suncor or Imperial Oil, Canada’s two largest oil producers. Very few follow drilling company Akita Drilling, a company 99% of you think I just made up. Yet there are compelling reasons to buy the latter over the two former companies.

This is an area of the market where a smart manager can really make a huge difference. They can pick up cheap stocks, hold until other investors figure out the opportunity, and then sell when things get higher.

Take the Mawer Global Small Cap Fund for instance. It has been around since 2007, and has pretty much trounced the market since inception by following such a strategy. If you would have invested $10,000 in the fund when it opened, you’d have nearly $30,000 today. That’s compared to an investment in the TSX Composite Index, which would be worth about $11,500 today.

That’s a difference of…carry the one…a lot. This Mawer fund has killed just about every index fund during its existence.

The fund’s top holdings are littered with names unfamiliar to the average investor. Bank of Hawaii Corp. DCC PLC. PayPoint PLC. Amsterdam Commodities NV. I swear, these companies really exist.

Even though this fund charges investors a 1.74% annual fee–multiples higher than Vanguard or iShares charge for even their most expensive ETFs–it’s cash that has been worth every penny for investors.

The only disadvantage to this fund? You’ll need a minimum investment of $5,000 to get a piece of the action.

The Mawer fund isn’t the only terrific mutual fund out there in Canada.

Back in 2000, small-time asset manager Norrep launched the Norrep Fund. If you would have put $10,000 in this fund on inception date, your investment would be worth nearly $86,000. That compares to the TSX Composite Index, which would have turned $10,000 into approximately $26,000.

The Norrep Fund charges a rich management fee of 2.36%. And like the Mawer fund, its portfolio is stuffed with companies the average layperson has never heard of. But you can’t argue with the results.

Should you try this strategy?

Naysayers will point out that it’s always possible to find mutual funds that do well over a period of time. A fund manager can always get lucky. After all, a broken clock is right twice a day.

These people have a point. There’s no guarantee the Mawer or Norrep funds profiled above will continue to outperform. In fact, they may even underperform going forward as returns regress to the mean.

But at the same time, I don’t think it’s something that should be dismissed completely. There’s a very clear reason for their outperformance. They continue to have the same people in charge. And luck doesn’t tend to last a whole decade.

Picking winning mutual funds is tough, there’s no doubt about it. Many people will choose not to bother, and I don’t blame them one bit. If ETFs are a fine solution, then why even try to mess around in the world of mutual funds?

But the fact is that among the many duds are some great funds that can make a lot of money. If you can find one of these funds, it might make a big difference in your net worth.