In today’s video,
I am going to share
how to build wealth in 7 steps!
No matter where you are
in your wealth-building journey,
the tips I’m about to share will help you
to grow your wealth in the long run.
The end goal is to help you
build a $1 million dollar saving!
Now, while these steps are proven to work,
keep in mind that
this is not a get-rich-quick video!
These 7 steps do take time and
they work like a cycle that you have to
repeat over and over again
to build wealth throughout your life.
And as always,
if this is your first time here!
Thanks for dropping by!
My name is Thomas,
This channel is to help Canadians to make better choices
On Retirement Wealth and Insurance
My goal is to make sure you take 1 or 2 ideas home
So you can make better financial decisions onward!
If this is something that you are interested in
make sure you click the subscribe button below!
Let’s get started!
Before we can have a million dollars in the bank account,
we have to understand
what we already have and what we need.
Do you know how much money you make each year?
Do you know how much is left after tax?
And probably the most important question:
In order to reach your financial goals,
how much money do you need to save?
Get clear on your current income,
spending habits, tax burdens,
and savings before you set out to build wealth,
as this is your foundation.
Cashflow is simply Income minus expense,
is there any ways to increase our income,
and decrease our expense.
The next step to build wealth is
to clear your bad debts.
How I define them are debts that
are not yielding financial returns.
The thing is,
most Canadian’s have some kind of debt.
Usually,
we have something like a mortgage,
a car loan, or student loans.
But these are good debts with low-interest rates
- usually below 4- 5%.
and in return
you are receiving a higher amount of income.
and your investments should be high enough
to cover your debt and still give you gains.
For example,
if you pay 3% interest on your debts
but you get a 10% return on investments,
then you are covered.
Plus you might able to get more tax advantage
with the interest payments.
I’ll share more about investments in a moment,
for now,
keep in mind that low-interest debt
is not a big problem.
Credit card debt or payday lender debt,
however,
is a huge problem!
The interest rate on credit cards is 20%
and the rate for payday lenders is
extremely high between 50% and 200%.
Don’t get me wrong
Personally,
I like credit cards,
it’s a good medium for transactions
and if you use them right,
you get a lot of perks.
but make sure you pay back the money each month.
If you don’t,
you’ll lose a lot of money.
You will be surprised,
that right now about 30% of Canadians
are in credit card debt.
And it’s usually not the individual’s fault.
Credit card companies make their
terms and conditions confusing on purpose –
because that’s how they make their money.
Let’s look at
credit card minimum payments as an example.
Your credit card statement might say
that you have $1,500 in credit card debt.
Underneath you sometimes find a sentence
that says that you need to pay $10
before a certain date to avoid penalties.
This gives the illusion that
you only have to pay $10 to avoid fees
- but that’s not true.
You have to pay the full $1.5k to avoid fees.
If you don’t pay the full amount you get a 20% penalty…
If you keep paying only the minimum payment,
your credit card debt will be doubled in every 4 years.
The larger the debt is,
the harder it is to escape it.
So my advice to you is,
if you always credit card overdues,
use all your extra money towards it.
Find out why you are trapped in the hamster wheel
Don’t think about savings or investments yet
and make paying off the credit card debt
as your top priority.
It will give you the biggest return and
the best chance to build wealth later.
Step 3 to build wealth is
to reduce spending and increase income.
That’s because,
when you want to build wealth,
it’s not about how much you make.
It’s about how much you keep.
You could earn 500K a year but spend 490K...
you wouldn’t be wealthy even if you have huge income.
So,
a big income alone doesn’t equal wealth.
How can we make sure you keep more of your money?
Well,
step one is to reduce unnecessary spending.
Even tiny expenses can add up.
Let’s assume,
for example,
you spend $10 on lunch each day
It doesn’t sound much at first...
it’s only $10 a day, right?
Well if you spend $10 five days a week
it adds up to $2.5k a year.
But if you bring your own lunch,
you have an additional $2.5k that
you can put in your savings account,
invest or use towards your credit card debt.
And the food is only one example.
There are likely many other areas in your life where
you can make smarter decisions and free up some money.
If you don’t have a family and don’t need a lot of luxury
to live a happy life you might be able to save
up to 40% of your income.
You can then use the money for investments.
The more of your income you can set aside
the faster you’ll build wealth.
If you have a family, mortgage,
and other responsibilities
it might be less but
that doesn’t mean you can’t build wealth at all.
Besides reducing your spending,
increasing your income is a must now.
Remember we are living in a skill economy
- not a labor economy anymore.
Meaning,
if you have a skill you are good at and
passionate about you can monetize your skills.
Find something you are passionate about and see
if you can increase your income by 10% every year.
Increasing your income is important because
no matter what you do,
you can only lower your expenses to a certain level.
You’ll always need to pay for food and shelter,
there is no way around it.
Finally,
to make all of this easier on you,
it might be a good idea to create a budget for yourself.
First,
track your spending habits and income.
Then evaluate your spending habits
and create a fitting budget.
To start out you can use a simple budget like this:
50% of your income goes towards living expenses
20% for fun money
30% for savings and investments
Or,
if you can live with less fun money,
use more of it for investments.
Then,
proceed to re-evaluate your budget regularly.
Step 4 for building wealth is
creating an emergency fund.
An emergency fund is a stash of money that you
set aside for emergencies and unexpected expenses
like a broken car or unexpected bills.
Imagine If you didn’t have an emergency fund
but would need money on the spot
what would you have to do?
You’d have to take money out of
your investments or use a credit card.
Both aren’t ideal.
If you take the money from your investments
- by selling stocks,
for example,
there is a high chance that you are
losing money if the market is down.
What’s more,
your investments could also be tied up,
for example,
if you invest in real estate.
In such a case,
many people use their credit cards
to pay for emergencies.
But that bears the risk of ending up
with credit card debt.
Now,
you might wonder how much money
you should put into your emergency fund?
Ideally,
you’d have enough money to cover
your expenses for at least three months.
For most people,
that could be ranging from 10k to 20k.
It’s also important that you don’t take it too far.
There is no benefit of having 20k in savings.
If the money is just sitting there,
it’s better to invest in stocks
and get a 7% return instead of 1-2%.
So what I recommend is to have
a personal line of credit or
home equity line of credit pre-approved first.
Then you can move your troops to investment.
This is important because
we don’t know when the emergency occurs.
it could be tomorrow or it could be in 10 years...
so we want to make sure every dollar is optimized.
Insurance is probably the most under-used asset
when it comes to building wealth.
During your early stage,
insurance will be the lowest cost
to protect your income and assets.
And later when you build up the wealth,
insurance now can act as a gatekeeper.
To make your asset more tax efficient and time-efficient.
There is a variety of insurance for any kind of scenario.
For example,
I recently recorded a video about
Critical Illness Insurance and its benefits.
You can click the link at the top to check it out.
Either way,
leveraging insurance is a smart way to do it.
And It acts like a plan B when your plan A falls apart.
All steps until here were about
protecting your current wealth.
It is important but to actually grow your wealth
you need one more step
- Investments.
You don’t need to invest in anything crazy or complicated.
Most wealthy people stick to the stock market,
real estate, or invest in businesses.
Most importantly,
invest in what you know and understand.
The thing with investments is,
the majority of people will never do it.
Most people either spend their money
or put it in a savings account.
But to get really wealthy
you need to make your money work for you.
If you invest in certain area,
dividend stocks, for example,
you can get paid dividends every month.
Or if your stocks grow in value,
you can sell them for a profit.
What’s more,
you can use tax shelter accounts such as TFSA.
Here is an example of how powerful investments can be:
If you are 30 years old and
manage to put $500 a month into a TFSA,
you’ll save $6,000 a year.
If you do that for 25 years and get an 8% return per year,
you’ll have around $470k...
where your output is only $150k.
If you use your TFSA at this rate
and save it until 65 years old,
you’ll have 1,1 million dollars and
That is completely tax free.
And my last tip for you in building wealth is
Never rely on the game of luck.
Some people want to be wealthy
by gambling or playing the lottery.
Hoping that they will get rich in one day.
But do you know what are
the odds winning the lottery?
The chances of winning the 6/49
are 1 in 13,983,816…
And for lotto max is 1 in 33,294,800
Those odds are so long that you are more likely to:
Die because flesh-eating disease (1 in one million).
Be killed by thunder storm (1 in 56,439).
Or You are three times more likely to be killed
in a traffic accident driving to
buy your ticket than winning the jackpot.
Even if you do get lucky,
how many times that we heard about
lottery winners goes bankrupt again?
You cannot just HOPE to become wealthy in one day.
Hope is never a strategy and
it’s better to make concrete plans.
What’s more make sure your financial goals are SMART,
meaning they are specific, measurable,
attainable, realistic, and time-sensitive.
It really only takes one mistake or
one poor decision to go from rich to being poor.
But it takes countless micro successes
to become wealthy
So if there is anything you want to take home today,
remember this simple three-part framework:
Know your money,
protect your money
and grow your money.
If you want to know more
about this three-part framework,
check out the link in the description.
I recorded a special masterclass about knowing,
protecting, and growing your money.
It’s completely free and
all you need to do is click the box below!
Hey Thanks for watching!
This is Thomas
And I look forward to seeing you in the next video!