That’s where this quick guide to personal finance, comes in! With the help of industry experts, this article explores these three key aspects of investing:

1) saving and budgeting,
2) investment basics, and

3) ETF considerations, providing you with the information you need to start on the right financial path.

Let’s start at the beginning, with the foundations of personal finance.

Saving and Budgeting

According to Lynn Wang, MSc, CFA, CFP®, CLU, FRM, a great way to conceptualize personal finance is to liken it to the process of building a house. 

Wang, Wealth Advisor, iA Private Wealth and Insurance Advisor, iA Private Wealth Insurance, says you need to start with the foundation, which includes financial planning and budgeting. Next, you build the structure of the house, or go through the asset allocation process, where you decide how you want to invest. Then you focus on the exterior of the house, or risk management, where you’re focused on ensuring the structure is as protected as possible from the elements. Once the main structure is complete, you can move on to interior design, where you get into the details of picking stocks and securities.

Building a strong foundation

Much like with building a house, it’s essential to have a strong foundation in place before moving on to other elements of the investment process.

Wang notes there are two equations to help you assess the strength of your foundation: net cash flow and net worth.

1. Income – Expenses = Net Cash Flow

2. Assets – Debt = Net Worth

“The goal is to achieve positive cash flow, and in this scenario, any extra income can go toward assets or reducing debt,” explains Wang. “In a negative cash flow scenario, you will need to take savings or more from a credit card to cover the negative balance.”

To ensure positive cash flow, it’s essential to go through the budgeting process: analyze your non-discretionary and discretionary expenses and put a limit on discretionary expenses so you can generate savings (positive cash flow).

Investment basics 

Now that you have a strong foundation in place, you’re ready to move on to the structural components, where you explore where to invest your accumulated assets.

“Investment to me involves buying assets with the expectation that they will grow in value over time,” explains Ling Zhang, Vice President, iShares Canada Product, Black- Rock Asset Management Canada Limited. “Investments are usually used to achieve longer-term goals like saving for education or retirement.”

Let’s take a closer look at the common investment categories:

Cash (high-interest-rate savings account, deposits, or guaranteed investment certificates): Typically offer guaranteed return on investment over a period and have very low risk.

Bonds (fixed-income investments): When you purchase a bond, you lend money to the issuer. The issuer pays you periodic interest, and when the bond matures, the issuer will pay back the initial investment. Bonds generally pay higher income than cash deposits, but may carry greater risks, such as credit or interest risk.

Commodities (such as gold or silver): May help offset the impacts of inflation on other investments, and they’re also considered a portfolio diversifier, as they typically have lower correlation with other asset classes.

Mutual funds and exchange-traded funds (ETFs): These are investment vehicles that hold numerous assets (like stocks or bonds). They are professionally managed—the portfolio manager will rebalance the portfolio and manage the cash flow and other responsibilities. This means there will be a management fee charged while you’re holding the mutual funds or ETFs.

Zhang explains that while mutual funds have been in existence for over 100 years, ETFs launched in the 90s, so they are newer and less familiar to Canadian investors. ETFs are collections of securities that can be bought and sold on a stock exchange, which can offer benefits like ease of access, trading liquidity, portfolio diversification, and low cost.

ETF fast facts

target outcome

• Consult with the experts—investment professionals can help guide you through the process

Your personal finance journey starts… now!