Among the ways to shame people into paying more attention to their money is to question how much time they spend on matters of personal finance.
This leads to comparisons of how much time people spend on their finances versus watching TV, for example. In a recent survey done for a U.S. website, people were found to spend more than 85 hours a month watching TV – almost 100 times as much as the time spent on household finances.
To mark Canada’s Financial Literacy Month in November, let’s try something different. Instead of questioning whether people are spending enough time on their finances, we’ll look at how much time is actually required. Preview: It’s not that much; plenty of time for TV and such.
BANKING AND CREDIT CARDS
Check your accounts online daily, or at least every few days. With cyberfraud an ever-present threat, it makes sense to keep a close eye on your accounts so you can notice unauthorized activity and report it immediately.
In your bank account, look for debits or withdrawals that you did not make. In your credit card, ensure all charges were made by you. Report any fraudulent activity to your banks and ask how quickly your losses will be covered.
According to the Financial Consumer Agency of Canada, financial losses that result from your card being using without your permission will usually be reimbursed as long as you took reasonable care to keep your account number and PIN safe.
Frequent looks at your bank and credit-card accounts may also help make you more aware of harmful spending patterns, especially now that more banks are offering budgeting apps that work in conjunction with your chequing account.
Review your savings accounts every few months to ensure the rate you’re getting remains competitive. For the sake of profitability, banks may suddenly decide to be less aggressive on rates for savers. Switch banks as required to get a competitive rate, which right now would be at least 2 per cent.
If you’re fortunate enough to receive annual pay increases, increase your savings rate to reflect the amount of your raise.
Twice-yearly checks suffice for a properly diversified portfolio that mixes stocks and bonds in a thoughtful way and has measured exposure to U.S. and global stock markets as well as Canada. If you have a balanced exchange-traded fund or mutual fund – a diversified portfolio in a single package – then annual reviews are fine.
What you’re checking for mainly is to ensure the weighting of your various portfolio components is more or less in line with your target. A bad run for stocks could turn a portfolio with 60-per-cent stocks and 40-per-cent bonds into a 50-50 mix. That means it’s time to rebalance by selling some bond holdings and buying more stocks.
Watch your year-by-year returns to make sure you’re getting satisfactory results from your portfolio, but a much bigger emphasis should be placed on longer-term results. A portfolio with solid five-year results and a weak one-year result is nothing to get upset about, but keep an eye on things.
An annual review makes sense to compare the rate you’re paying and current rates. If rates have fallen a lot, why not check with your lender to see whether it makes sense to break your mortgage and lock in a lower rate? Brace yourself for a megasize penalty if you deal with one of the big banks, which tend to be tougher on these charges than non-bank lenders.
Whatever the term on your mortgage, plan to start educating yourself on interest-rate trends about four months ahead of renewal date. Lenders typically let you lock in a rate 90 to 120 days ahead of renewal or purchase.
IF YOU HAVE A FINANCIAL PLAN
Review the document once a year to see whether you’re on track in terms of projected assets and liabilities – what you own compared with what you owe, in other words. Do, please, follow the plan. Financial planners sometimes get exasperated by clients who bury their plans in a filing cabinet.
PERSONAL FINANCE COLUMNIST
The Globe and Mail, November 5, 2019