Pay Yourself First

In the wake of my column in last week's Financial Post offering advice to new grads, I received an email from a Montreal medical student who says he has only just recentally realized that, after spending his entire life in school, he has never learned anything about econmics or personal finance. ("Financially illiterate" is the phrase he used.)

Could I, he asked, "recommend some further reading and general guidelines towards my goal of expanding my financial education and future entrepreneurship"?
Here's how I replied:

The simplest, most powerful financial concept I know is "pay yourself first." No matter what your income is, spend less. You can do it if you keep your credit cards at home (some people keep them in a block of ice in the freezer, so they're hard to get at). Before you pay your rent, pay yourself a certain amount each month ($100, $500, whatever). That ensures that you have savings. Every other dollar you spend comes after your savings account. And you never touch that account, until you come to buying a house or having kids, or some big event like that.

If you can do that, you don't really need any other financial advice.

I suggest you keep your savings account invested in an income-based mutual fund, such as a dividend fund. Lots of banks and fund dealers offer them. They provide a good combination of security, income and growth, by mainly investing in stable businesses such as banks, utilities and insurance companies.

Entrepreneurship is all about finding ways to meet people's wants and needs by developing unique solutions that you can provide that are better or more focused than what other people offer, or that are delivered with more joy. And you can do it part-time as well as full-time.

Check out the new book "Re-Work", by Jason Fried of 37 Signals, for an update on what entrepreneurship means today, or read "Delivering Happiness," the new book by Zappos founder Tony Hseih, for a good look at where entrepreneurship is headed.

If I can think of anything more profound to suggest, I will let you know.

What advice would you offer our future MD?