9 “Quick And Unpolished” Tips for People Who Want to Make Extra Money
I’ve been looking into upgrading my personal finance for years now.
Like most people, it wasn’t really something I prioritized. Partly because I was blinded by the “traditional timeline” everyone unconsciously follows:
- Finish school
- Get a job.
- Get married.
- Buy a house.
- Start a family.
Nothing in that list talks about the importance of personal finance or retirement. My guess is that it wasn’t really an issue back then. But we’re now in the 21st century— things have changed!
I was slapped by the importance of personal finance back when I was unemployed for 9 months. It was a dark period of my life where I struggled to find “meaning.” I know, too deep…but let’s bring it right back up.
I almost used up all my savings. When things are tight, you’re forced to be creative. To be creative, you have to understand what can and cannot be done. That’s me saying, I was forced to learn personal finance to get a good grasp of the things I can do to preserve my finances.
If it wasn’t for that struggle, I’m probably going to end up being passive about it and lose all potential earnings I could’ve had.
Over the years, I learned a few things here and there. I read books, listened to podcasts and watched YouTube videos.
I have to admit, it’s not the most exciting topic I want to learn about. But as soon as you start a family and think about retirement, you’d wish you had looked into it back when you were 18 years old. Why? Time plays a big role to maximize the rewards of compounding interest.
Before we get to it, please note that I’m NOT a financial expert that can explain why this and that matters. I’m sure I am missing something here.
If you need expert advice, then SEEK AN EXPERT.
What you’ll read here is a list of lessons I learned from managing my own finance.
Saving vs. Investing
“Saving” to me is simply the act of putting money aside. I did not realize that the account where I save my money also matters…a lot.
That mindset never changed until the bank teller noticed how all my money is in my checking account. But checking accounts have poor interest rates. She was puzzled. Then, she suggested I invest my money in a mutual fund because I can earn more. That’s when I was first introduced to investing.
Now, the idea of investing was mind-blowing to me (haha, I know). The idea that I can “earn extra money simply by putting it aside” was a game-changer to my finance.
I thought I was already doing things right by “saving” — but that is (obviously) not enough.
The lesson? Avoid being passive about your finances.
Ignorance in personal finance significantly reduces your money’s potential growth.
Big Banks vs. Credit Unions
I learned from a book that big banks are “thieves” when it comes to your savings. The alternative? Credit unions.
Credit unions typically give you higher interest rates than the big banks. Their fees are also better.
This piece of advice got me to transfer my TFSA from the big bank to a credit union. The earnings I got was more than double what I’m getting from the big banks.
But of course, not all credit unions are the same.
So do your research before you jump the gun.
Investment Fees Eat Up Your Money’s Growth
There are fees associated with your investments. Most financial advisers don’t talk about this. And if your financial knowledge is not up-to-speed, then you could be losing money.
Chances are you’re going to be ok with it simply because you’re unaware of it. And if everything is ok then it’s pointless to make an issue out of it…right?
But note how fees can significantly reduce your earnings. If you run the numbers, you’d be shocked to see how much you’re paying in fees.
If you’re not sure how much you’re paying, ask your financial adviser.
RRSP and The Curse of Double-Tax
A tax accountant once told me about how I shouldn’t put my money in an RRSP. Apparently, I was too young to invest in it. Then he educated me about how I can get taxed if I decide to take out my money in an RRSP before retirement.
The first round of taxing happens as soon as I take the money out.
The second round of taxing happens when I pay my annual tax for the year. Why? That money I withdrew is considered as part of my income. The higher your income, the higher the taxes you have to pay.
Now that sounds like a double whammy. It puts RRSP in a bad light.
But as I’ve learned more about it, I realized how powerful RRSP is when it comes to saving you money from paying your annual taxes!
As I mentioned earlier, the money that goes in and out of your RRSP money is considered to be an income. When you put in money, you reduce your income. When you take out money, you increase your income.
Now, that money you put in your RRSP will earn some interest. And it’s “tax-deferred,” meaning, you are not going to get taxed on your earnings. Taxing happens only when you take it out (because, again, it is considered an income).
Simply put, RRSP provides you with double-benefit:
- Reduces the annual tax you have to pay, thus, increasing your tax refund for the year.
- You don’t pay taxes on the “income” you get from the money you put in it.
That being said, why wouldn’t I invest in an RRSP?
Also, run the numbers. Find out how much money you are saving from reducing your taxes. You’ll realize why you didn’t get started right away.
One last note: RRSP is for retirement. It is NOT an emergency fund. Therefore, you shouldn’t even think about taking it out until you retire.
TFSA Should Not Be Used as an Emergency Fund
My fiancée asked me, “How much are you earning from your TFSA?”.
The answer? Not much. The return I get is less than the savings I could’ve gotten if I put the money into my RRSP.
So this obviously created some confusion on her end, “So why keep investing in it?”.
I treat it as an emergency fund. Unlike RRSP, I don’t get taxed if I decide to take out the money. No wonder why it’s called “tax-free savings.” I don’t get taxed on the growth either. So to me, TFSA serves a double-purpose.
Then she asked, “What about your line of credit? Isn’t that what you’re using as an emergency fund?”
That’s when the realization hit me that what I think I do is different from what I actually do.
TFSA is best used as a long-term investment. Treating it as an emergency fund was a big mistake. I’m not even sure where that idea came from. But back then, I wasn’t really thinking about tackling my debts. I was fixated on investing.
TFSA is a “liquid asset.” I can make withdrawals without any fees. And since emergency funds are just sitting there anyway, I might as well invest it to earn extra money, right?
The theory makes sense, except that the interest rate I’m getting from my TFSA is really low. I also did not factor in my debts.
After further discussion, she advised that the money is better used to get rid of my debts (line-of-credit). Why? I’m paying more on my debts than what I’m gaining from my investments.
If you incurred a huge debt, that low-interest rate can keep you in debt. Five percent of 50k is significantly higher than five percent of 20k. Basic math. So to slow down the rise of my debts, I decided to take out all the money from my TFSA and used it towards my line-of-credit.
Life Insurance as a Retirement Investment
I became a life insurance broker because I wanted to learn more about my life insurance policy. It turns out that I can have life insurance and a retirement investment at the same time. The Government of Canada acknowledges that too.
Now there’s a lot more to this but I’m not going to get into it in this article.
Smart Credit Card Usage
I used to believe that credit cards are bad and that they can make you go into debt. This is why I hesitated on using them. My parents still think this way as well as some friends. But what I don’t think they realize is that there’s a deeper problem that’s causing all of that. It’s their lack of discipline towards spending.
Credit cards are tools — use them any way you want. A knife can be used for food prepping but you can also use it to end someone’s life. Banana peel is harmless until someone slips from it lol.
But the truth is, credit cards offer a lot of rewards most of us fail to leverage. Most offer discounts or cash backs. That’s the kind of card we use today.
I still have a card that racks up points for travelling even when it kind-of-useless today due to the pandemic.
A better reason to get a credit card is to get your credit score started.
The higher your credit score, the better rates you get for your loans. The better the rates, the more savings you get.
The Limits of Budgeting
I learned from Ramit Sethi that there’s a limit to what you can save but there’s no limit to what you can hear.
This insight forged a path to my dream of creating new income streams. Admit it, most of us don’t make millions from our 9–5 job. The income we make is almost always not enough to help us save for retirement.
Unless of course, you’re super disciplined and minimalist like those FIRE movement people.
The Sandwich Generation
If you’re Asian from a third-world country, you’re more likely to be in this category.
There is this viral video that made me realize how important planning for retirement is.
I’m not going to explain it here but you can watch it yourself.
Conclusion
A lot of these things you probably know already — depending on how much exposure you had to personal finance stuff.
My goal is to make you more (financially) aware of what’s out there…because staying passive about it is a disservice to yourself and to your loved ones.
I hope it helps.
