The best investment ever is whichever one will shore up your balance sheet and increase your net worth. Often there are simple things you can do that will increase your net worth without requiring you to know anything about investing or the stock market.
I just finished a four-month gig on the TV show “Emily Owens MD” and I am going to walk you through exactly how I invested the extra income.
First you need to understand what a balance sheet is and how to make one. Fold a piece of paper in half. On one side write the word “liabilities” and list every debt you have in your life. On the other side of the paper write “assets” and list anything you own that either brings in money, or could quickly be converted to cash.
Now subtract your liabilities from your assets and you get your “net worth”. Is it a positive number? This is like your financial score card and I encourage everyone to create one and update it regularly. If you don’t keep score, how do you know if you are winning?
Here is my balance sheet from June 2012.
I am not too proud of this balance sheet. Although I had some assets, my liabilities side was too high for my liking.
The film industry was slow for the first half of this year and when I returned from my annual vacation, I was hit with a large HST/tax bill. Luckily I started work on Emily Owens at the beginning of August.
Here is my balance sheet today.
Although I did buy some shares of Apple when the price dropped 20%, you will notice that most of my “investing” was just paying off debt. My visa card charges 11.5% interest, so paying that off was like buying an investment with a guaranteed 11.5% return. Hard to find now days.
You will also notice there was a lot of “automatic investing” going on because of the way I have things structured. My car payment comes out automatically every month, 9% of my income is invested in mutual funds through my union every month and my Dividend Reinvestment Plans (DRIP’s) automatically buy me more shares every quarter.
It’s important to note that it doesn’t matter what side of the balance sheet you invest in, they both have equal effect on your net worth. Paying down $1,000 of debt (liability) has the same effect as paying $1,000 into your TFSA (asset). Either way, your net worth goes up by $1,000.
That’s why if you find investing confusing, you can always concentrate on paying down your liabilities while you read and learn enough to get started.
(to be continued…)
I think some people forget that it doesn’t matter what side they pay down or pay into it’s all the same jazz. Great going Troy.. like this post. Will you be doing it often?
Like an on going balance sheet update? Not sure. It feels a bit personal, but since I don’t use any real numbers I feel okay with it.
I was really hoping to get my car paid off, and then I would be 100% debt free, but our show got cancelled before I got that accomplished.
I think the point is to do what you can with what you know. You seem to be very good at finding ways to save money and that’s why I think all my readers should check out your site for ideas.
Thanks for the comment!
Cheers Troy!! I just meant a post similar to this not actual numbers as I wouldn’t be comfortable putting my face out there and my finances although many do. That’s just not me. I’m very personal when it comes to what we have. What’s on the job front for you now?
Yes, there will be more similar posts for sure. The film industry winds down this time of year, but I am working on the TV series “Fringe” tomorrow.
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Hello, Troy! The jist of my query: how does one go about holding stocks within a TFSA?
And the long version: I’ve subscribed to your blog from Day 1 in an effort to move out of the financially clueless category. Truth is, I know nothing about finances, and have only in recent weeks even looked at taking action; beginning with making my way through a couple books on your reading list. Wish I hadn’t procrastinated. I’ve got savings … but in savings accounts and GICs, and more GICs. Yep, might as well be in a sock under the mattress. So I read The Lazy Investor as well as Rich Dad, Poor Dad (everything but the real-esate stuff was useful) and starting to look at dripinvesting.org, and went back to re-read your articles that I hadn’t previously really grasped, got some ideas, but haven’t done anything yet (involved in a play which opens in 10 days; time’s at a premium; overwhelmed by how much info is out there). I have room to contribute to my TFSA for this year, and last year; do not have any stocks … tsk, tsk … What is the next step required to set myself up so I can “acquire stocks held within a TFSA”. As in, what do I ask for when I go to the bank tomorrow? The only kind of TFSA I have right now is a savings account, at a rate that’s .05% lower than even a high-interest savings account
I know you’re not a financial advisor, but if you could nudge a fellow actor in the right direction, would be hugely appreciated. Happy New Year!
Your question is an important one, so I am going to write you a long response as a blog post. I hope you don’t mind me using your letter as an example.
Not at all! I’m sure it’ll also help others out there who might have the same question. Thanks for maintaining such a useful blog
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