I stumbled across an eye-opening article on Business Insider
the other day. It outlined the importance of investing and how much you need to put away in savings to become a millionaire by the time you’re 65. Take a moment to think about the lifestyle you’d like to have when you’re out of the workforce just north of the 60 mark (or if you play your cards right, much before then!) and chances are there’s a hefty price tag associated with these dreams. Factor in inflation and the fact that you won’t be making a steady income and a million dollars isn’t all that inconceivable.
You know what they say–it’s never too early to start saving! I don’t just mean tucking away money for a rainy day; I mean actually investing for the future by creating a customized financial plan. Becoming a millionaire isn’t just for game show contestants and high-income earners; the average person can build up their net worth without extreme penny-pinching.
"The best time to plant a tree was 20 years ago. The second best time is now." If you didn't start putting away money when you were young, start now.
According to these charts, it is entirely doable to become a millionaire; however, it takes a lot of discipline and smart investing choices during your working years. Earning a 6% return, a twenty-year old should be saving at least $200/month. A forty-year old would have to save five times that amount to be in the same financial situation by retirement age.
Compounding interest is a powerful thing. Doesn't it make you wish you put that Beanie Babie money into bonds, paid for your education in full, and didn't have student loans following you around for forever? Hindsight is always 20/20. But like I said, it's never too late to start.
So HOW do you save $200, $400, $600, etc. per month?
Here are a few tips to get your started:
Increase your income:
Make some extra cash by picking up odd jobs on the side. For example, try selling your crafts on Esty, start a snow-shovelling/lawn-cutting business on weekends, or pick up some bartending shifts if you have the talent and the time.
Take advantage of employer-sponsored saving plans, employee stock ownership plans and pension plans as best you can. That $25 that comes off your paycheque every two weeks may not seem like a big difference at first, but it certainly adds up after forty years.
Invest in stocks:
Be sure to do your homework first or speak to an advisor to address the following questions: How would you describe your risk tolerance? How often do you want to keep tabs on your portfolio? How would you like your funds allocated across industry sectors? It's amazing how many *free* education tools you can find online or through your brokerage firm. Online stock trading is something I've been doing for just over three years now and I wish I started sooner.
Invest in dividend stocks:
Oh, how I love dividends; I love them even more when they are re-invested. Instead of having your stock dividends paid out in cash, you may consider enrolling in DRIP, which uses dollar cost averaging to purchase more shares in a company at higher and lower prices throughout the lifecycle of your investment with that company. It's a great way to avoid paying commission for more shares.
Open a Canadian TSFA:
A lovely thing. You can contribute $5000/year and enjoy tax-free growth in your account.
Contribute to your RRSP:
Contributions are deductible from taxable income and growth in your account is tax-deferred until withdrawn. Whether you're saving for retirement or for your first home, RRSPs help you get there.
Contribute to RESPs for your kids:
I already told my parents that when I have children, they will get one toy for Christmas, birthdays, etc., but the bulk of their presents will be cash contributions to a education savings account. They'll thank me later when their education is paid for.
If you're on salary, chances are you know exactly how much money you make each month. Because I earn travel points, I like to use my VISA card for everyday expenses such as groceries, gas, and incidentals. I only use my checking account to receive paycheques, set up automatic payments and pay online bills. I find it is easier to keep track of my debits and credits this way; I know exactly how much I put on my VISA and I try my best to leave enough money in my checking account to pay it off the balance at the end of each month.
I do my grocery shopping at three different grocery stores--one for meat, milk, dog food, and bulk products, another for fresh produce and specialty foods, and the last one for canned goods and cheese. I often check the online flyers ahead of time to see what deals I can expect when I go.
Don't be frivolous:
If you don't love it or need it, don't buy it. I know I'm guilty of throwing odds and ends in my shopping cart when I'm out and about and I'm trying to stop making these impulse purchases. I'd LIKE pretty fake flowers for my bathroom and I WANT a banana rack for my kitchen, but they are by no means a necessity. Ask yourself on a scale of 1 to 5 how badly you need/want something and if it's a 1, 2, or 3, put it back immediately. Think about that 4 for a moment: if you can qualify it as a 5, don't feel guilty swiping your payment card.
And for the obvious answer...
Become a millionaire now
and please share your secrets with the rest of us! 😉
Retirement is supposed to be a time of relaxation and reward, a time to enjoy family life and reap the financial benefits of your working years. It might be a bit premature to pick up the knitting needles and start planning exotic cruises around the world, but at least when the time comes you'll have built yourself a nice nest-egg!