hey guys it's adrian here the canadian in a t-shirt and today i'll be breaking down
how to build wealth in canada these are the four key steps on the road to financial freedom these
fundamental principles are useful for anybody at any age but i will be targeting canadian
millennials like me right off the bat if you're looking for how to get rich quick this video is
not for you my strategy is built around growing wealth in the long run i'm talking 10 20 30 years
my strategy is simple consistent and boring i'm not going to double my money overnight and neither
will you the only way to get rich overnight is to be born into a rich family or marry a millionaire
for everyone else you need to consistently grow your wealth year after year and these four steps
will get you there without further ado here's how to build wealth in four steps pay off your credit
card debt reduce your spending set up an emergency fund and invest before we jump in this video is
actually an updated remake of one of my very first videos back then i was filming with my cell phone
and a cheap mic so the audio and video quality weren't great but the information is extremely
important and relevant today so i wanted to spruce it up and provide some updated information so even
if you've seen the original i'd really appreciate it if you watched this video until the end and
give it a thumbs up also i need to stress that these four steps are not a sequential to-do list
you don't just go through them checking them off one by one until you're done these four steps are
the pillars of my financial strategy and building wealth is a never-ending cycle i am constantly
reevaluating where i am in this cycle and before i make any financial decision i consider how that
action will affect each of these four pillars so let's start at the top paying your credit
card debt in full before you do anything with your money you need to get rid of your credit card debt
and any other high interest debt most canadians have debt and these include mortgages car loans
and student loans but these loans usually charge really low interest rates below five percent you
do need to pay these off but not right away there's no urgency if your mortgage charges
you five percent per year but your investments give you 10% per year you'll end up with more
money if you invest rather than paying off your mortgage faster but the debt that you have to get
rid of right away is from credit cards and payday lenders they charge huge interest rates credit
cards in canada charge between 20 and 25% interest and payday lenders are even worse they can charge
upwards of 50 and even up to 200% interest that's ridiculous you should avoid these payday lenders
like the plague and if you see these signs never go in if you've seen my credit card guide you
know that i am a huge fan of using credit cards every day but only if you can pay your monthly
statement in full every single month more than 30 percent of canadians are in credit card debt and
that's because credit card companies intentionally make their terms confusing especially for students
and new canadians who are the most vulnerable i want to focus on one crucial trap the credit
card minimum payment this is something that drives me crazy and this is how most canadians
especially young adults fall into debt without even knowing it i'm showing you the bottom portion
of my credit card statement from my american express card you'll see that i owe a total amount
of 1822 dollars but right below it it says that the minimum payment i must make is only $10 and
that i have to pay this $10 to avoid penalties this is a trap a terrifying number of young canadians
believe that as long as they pay this $10 minimum amount they won't be charged any fees or penalties
this is wrong i have to pay the full bounce owing which is $1822 by the due date if i want to avoid
interest if i pay this full amount by the due date then i'm good american express won't charge me any
fees or interest and in fact i've gained a small two percent cashback just for using this card but
if i only paid this 1$0 minimum amount i still owe american express $1812 and as soon as the deadline
hits at the end of the month they will start charging me 20% interest on this amount that's
an additional 360 dollars at the end of the year plus an additional $430 after the second year if i
keep paying only the minimum $10 amount my original $1800 debt will have doubled in less than four years
this is how credit card companies make money and this is why it's so hard for canadians to escape
debt if you have high interest debt so credit card debt or payday loans do not even consider
investing or putting that money into a savings account there is no investment out there which
can give you 25% returns but if you put all of your income into paying off this credit card debt you
are saving yourself this 25% of interest working against you and that is a guaranteed return of 25%
so if you have fully paid off your credit card and other high interest debt then we move on to step
number two reduce your spending step number two is to reduce your spending or to live below your
means becoming wealthy is not about how much money you make it's about how much money you keep if you
make $200,000 a year but you spend $190,000 a year on fancy cars fancy clothes fancy dinners you'll
never be wealthy even though you have a huge salary this is why you hear stories of people who
win the lottery and then become bankrupt within a year they earn a lot of money but they spend it
all on things which don't provide any value back i'm an extremely frugal guy i don't like spending
money and i always live below my means and reduce my expenses for example instead of going out to
buy lunch every day which would cost me between $10 and $15 i always pack a lunch and bring it with me
you may think fifteen dollars is nothing it's a drop in the bucket but if you work five
days a week you're spending almost four thousand dollars a year on lunch instead that four thousand
dollars a year could be put into your tvsa or your retirement fund or even spent on a vacation using
my very strict budget and spending discipline i'm able to save about 40% of my monthly income
that allows me to put aside and invest that 40% of my income in things like stocks real estate and
in my business obviously everyone is different and i have the luxury of being independent i
don't have a family or kids that rely on me and so i'm able to limit my expenses to such a degree
and save a huge portion of my income the point here is that even if i doubled my salary next year
i would still try to live below my means i wouldn't move to a fancy apartment or upgrade to
a luxury car i would try to maintain my standard of living and keep my monthly expenses the same
and so i'd be able to invest even more out of my income it's not about how much money you make it's
about how much money you keep and if you want to increase your wealth you really only have
two options either increase your salary or reduce your expenses ideally you want to do both but you
can't just increase your salary overnight it takes a lot of time and effort to get a
promotion or you can spend even more time getting a second job like freelancing or driving for uber
it's much easier to reduce your expenses but you can't reduce your expenses if you don't know how
much you're currently spending that's why i made this excel budget spreadsheet where i keep track
of every single expense that i make here it is and every day or two i go through all of
my receipts and my online credit card accounts to see every single purchase i made i put these
expenses in different categories living expenses groceries restaurants car expenses entertainment
and miscellaneous at the end of the month i take a total of how much i spent in each category and
what my total monthly spending was if you're mindful and consistent with your budget these
monthly totals for each category should be pretty constant and that's a good thing that means you
can always predict how much you will spend in the upcoming month finally at the end of the month i
entered the total income i earned and this formula calculates what my percentage of savings was
i usually aim to save around 40% of my income i've uploaded this excel budget template on my google
drive account if you want to use it click the link in the box below click the download button
and then you should be able to open it in excel and use it to track your own expenses reducing
your spending and living below your means is not a one-time thing you have to constantly re-evaluate
your budget every few months or whenever a big change happens like a new job a new partner or
a new home the next step in building wealth is to grow an emergency fund an emergency fund is
a stash of money you set aside to deal with any emergencies or anything unexpected this money is
not designed to get you rich it's meant to act as a buffer or a shield to protect your investments
let's say you get into a car accident and it will cost you two thousand dollars to fix your car
you need to pay this money out of pocket right away so what do you do if you have an emergency
fund just withdraw the $2000 pay the mechanic and your investments are untouched and the next time
you get paid put the money back in your emergency fund to replenish it that's easy but if you didn't
have an emergency fund you might be in trouble you would have to tap into your investments
and sell off stocks to get this two thousand dollars the problem is you need this money today
and if you're forced to sell your stocks today you might be losing a lot of money maybe the value of
your stocks took a dip last week and normally that wouldn't bother you since you know your stocks
will bounce back in a few weeks but now you need this money today and so you'll have to sell the
stocks at this low value and as soon as you make that sale you've lost money even worse what if you
can't sell your investments maybe your investments are tied up in real estate or gics it takes weeks
or months to sell real estate and so now your only option is to charge that two thousand dollars to
your credit card and if you can't pay that in a month you're now in credit card debt and you'll
be charged 20% interest on that so you see having a few thousand dollars set aside in an emergency
fund can save you a huge amount of stress and a considerable amount of money your emergency fund
should not be tied up in investments it should be sitting in a high interest savings account
where there is zero risk if you have four thousand dollars sitting in a savings account it will never
lose value in fact it will earn you a constant and steady interest rate to match inflation right
now we're seeing historically low interest rates so the best savings account in canada right now
is with eq bank with eq bank you'll earn 1.25% interest with no monthly fees and no minimum
balance so it's perfect for an emergency fund if you'd like to get started with eq bank click
my referral link in the box below to sign up and help support my channel personally i like to keep
between four thousand and six thousand dollars in this emergency fund at all times that's enough to
cover all my expenses for at least four months if something were to happen an hour to lose my job
but everyone is different if you have a mortgage and two kids you'll probably want to save more
than six thousand dollars in your emergency fund but don't go too far with this if you have twenty
thousand dollars sitting in a savings account sure you'll be safe from any possible catastrophe but
that money is just sitting there it's not working for you $20,000 in a savings account earning
you 1.25 percent will only get you $250 a year instead if you invest this 20 thousand dollars
you could be earning yourself upwards of seven or eight percent every year once you have an
emergency fund set up you want to make sure that you always have enough money in there to keep you
afloat for at least four months any money beyond that is frankly being wasted in a savings account
and instead should be invested and that brings us to step number four which is investing and this is
where the fun begins everything i've talked about up until this point was about protecting yourself
and protecting your current wealth but investing is how you make your wealth grow if you live by
steps one to three you'll be saving money every year and you'll avoid paying huge fees to credit
card companies but you won't be building wealth at most those savings will earn you about two
percent a year and most of that will be eaten up by taxes and inflation instead if you invest your
money you can truly make your money work for you warren buffett the undisputed greatest investor
in our lifetime famously said if you don't find a way to make money in your sleep you will work
until you die no retirement no relaxing on a beach you'll have to work every single day just to live
and those words are incredibly true most people rely solely on their full-time job to make money
that means that they have to trade eight hours a day or more to get money at the end of the week
but if they stop working they stop getting paid and their income dies because of that
you'll always have to work more and more hours and work harder and harder to get more money but
there's a limit people can't work 24 hours a day and they shouldn't we need to have a life outside
of work we need to spend time with our family and friends and find joy in life on the other hand if
you invest your money your investments are working for you 24 hours a day your investments are making
you money in your sleep and that is the only way to build wealth i have a whole playlist called the
millennial investing guide so if you want to learn the basics of the stock market and how to actually
buy stocks click the pop-up at the top right to check those videos out but for today i want
to keep it very short investing is anytime you put money aside today with the expectation that
you'll make more money in the future you're making a sacrifice in the short term to reap the rewards
in the long term for example if you go out and spend a hundred dollars on starbucks coffee that
money is gone sure the coffee gave you joy and it was fun while it lasted but as soon as that $100
leaves your hands it's gone and it's never coming back to you instead if you went out and bought $100
of starbucks stock that's investing now you are a tiny owner of the starbucks company and so you
are entitled to a tiny portion of their profits for today in the short term you've still lost $100
out of your bank account but every three months starbucks will pay you a percentage of the profits
and that's called a dividend so that $100 you invested is now paying you every few months on
top of that as the years go on and starbucks as a company grows your stocks have also grown in
value and if you want to you can now sell your starbucks stock for let's say $150 in this way
your $100 initial investment has now made you an extra $50 in profits plus all the dividends that
you've received over the years compare this to the first case where we spend $100 on starbucks coffee
that $100 is gone and years later we're still left with nothing this is a very simple example
but i hope it illustrates what an investment is and how investing can make your wealth grow
and stocks aren't the only type of investing you can also invest in bonds etfs mutual funds
real estate and you can even invest in yourself by starting a business i've already made videos
on each of these topics so make sure you check those out and when you start investing make sure
you take advantage of tax sheltered accounts like the TFSA, RRSP and RESP if you have kids why pay
taxes on investments when you have tax sheltered room waiting for you so make sure you check out my
canadian tax guide to learn how to maximize your tax-free growth so there you have it those are my
four key steps to building wealth in canada pay off your credit card debts reduce your spending
set up an emergency fund and invest these are the four cornerstones of my financial strategy and you
should make it a habit of evaluating each of these four steps before you make any decision with your
money again this will not get you rich overnight it will take years and years to build your wealth
but if you keep this mentality and keep these principles in your mind you will become wealthy
one step at a time thanks for watching guys and be sure to like comment and subscribe if you found
this video helpful every thumbs up and comment really does help me build this channel on youtube
and hit that bell icon to notify my new videos and don't worry guys i'm still going to be making
lots of new videos but i do also want to remake some of my oldest videos which can use an update
so thanks everyone and i'll see you guys on the next episode of the canadian in a t-shirt bye guys