Hey guys it's Adrian here.
The Canadian in a T-shirt.
And today I'll be breaking down the four key steps to become wealthy.
These key principles are useful for anybody at any age.
Although I will be emphasizing millennials like me right off the bat.
If you're looking for how to get rich overnight this video is not for you.
My strategy is built around growing wealth in the long run.
I'm talking about over the course of 10, 15, 20 years.
My strategy is simple consistent and boring.
I am not going to double my money overnight and neither will you.
The only way to get rich overnight is to be born rich or to 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 this is how to become wealthy in four steps.
1.
Pay off your credit card debts.
2.
Reduce your spending.
3 Set up an emergency fund and 4 invest.
Each of these steps are huge topics on their own and I will definitely be making videos
devoted to each of these four topics over the course of the next week or two.
Also I need to stress this is not a sequential to do list.
You don't just go through these checking them off one at a time then moving on to the next
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 the 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 off your credit card debt in full before you do anything else for your money you need
to get rid of your credit card debt and any other high interest that you have.
Most Canadians have debt usually in the form of mortgages student loans or car loans.
But these loans charge pretty low interest rates usually less than 5%
You do need to pay these loans off but not right away.
The debt that I'm talking about is from credit cards and payday lenders credit cards in Canada
charged between 20% and 25% interest on your debt and payday lenders are even worse.
They can charge upwards of 50% interest and sometimes even up to 200% interest on your
debt.
You should avoid these payday lenders like the plague and if you see signs like this
around your town never ever go in.
If you saw my last videos you know that I am a huge fan of credit cards but only if
you pay off your monthly statement in full each and every month more than 30%
of Canadians are in credit card debt.
And that's because credit card companies intentionally make their terms confusing especially for
university students who are the most vulnerable.
I'll dive deeper into understanding credit cards and how to read a credit card statement
in a later video.
But for now 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 millennials fall into debt without even realizing
it.
I'm showing you the bottom portion of my last credit card statement for my American Express
card.
You'll see that I owe a total amount of $1822
But right below it it says that the minimum payment I must make is only $10 and
I have to pay this $10 to avoid penalties.
This is a trap a terrifying number of young Canadians think that as long as you make this
minimum $10 payment you won't be charged any penalties or fees.
This is wrong.
I have to pay the full balance owing which is $1822
by the due date.
If I want to avoid paying interest as long as I pay this $1822
by this due date American Express will not charge me any interest or any fees.
In fact I've gained a small 2% cashback bonus but if I only pay the $10 minimum
amount I still owe American Express $1812 and as soon
as the deadline hits at the end of the month American Express will start charging me 20%
20% interest on this debt.
That's an additional $360 at the end of the year and then an
additional $430 at the end of the second year.
If I keep paying only the minimum $10 amount my original $1800 debt will double
in less than four years.
This is how credit card companies get rich and this is why so many Canadians will never
escape their credit card debt. Again I
I will make a video solely focused on credit card debt in the next few weeks but my main
point is that if you have any high interest debt either credit card debt or payday loan
do not even consider investing or putting that money in a savings account.
There is no investment or savings account out there that can give you a 25% returns.
But if you take whatever income you have and pay down your credit card debt you are saving
yourself this 25% interest.
Working against you and that is a guaranteed return of 25%.
So if you have fully paid off your credit card debt and other high interest debt then
it's time to move on to number two reducing your spending.
Step number two is to reduce your spending or below your means becoming wealthy is not
about how much money you earn.
It's about how much money you keep.
If you earn $200,000 a year but you spend over $190,000
on fancy cars fancy dinners fancy clothes you'll never get wealthy.
Even though you have a huge salary.
This is why you hear the stories of people who win the lottery and end up becoming bankrupt
within the first year they earn a huge amount of money but they don't know how to control
their spending and they waste their money on things which will never bring any value
back to them.
I'm an extremely frugal guy.
I don't like spending money and I always live below my means and lower my expenses.
For example instead of going out to buy lunch every day which would cost me between $10 and
$15 a day I pack a lunch and bring it to work every single day.
You may think $15 is nothing.
It's a drop in the bucket.
But if you work five days a week you're spending almost $4000 a year on lunches.
Instead you could have invested that $4000 into your retirement fund or taking
your family out to a vacation.
Using my very strict budget and spending discipline I'm able to save about 40% of my monthly
income.
This allows me to put aside and invest this 40% of my income in things like stocks
real estate and in my own business.
Of course 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 cut down on my expenses
and save a huge portion of my income at least in my 20s.
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 into a fancy apartment and I wouldn't upgrade to a luxury car.
I would try to maintain my standard of living and maintain my monthly expenses so that I
could put even more of my income into investments for the future.
Again it's not about how much money you make.
It's about how much money you keep and to grow 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 increase your salary overnight.
It takes a lot of work and a lot of time to increase your salary by getting a promotion
or you can spend a whole lot of time getting a second job doing things like freelancing
or driving Uber but instead of just focusing on trying to increase your income it is so
much easier to reduce your expenses.
The thing is you can't reduce your expenses if you don't know how much you're currently
spending.
That's why I made this budget excel sheet where I keep track of every single expense
I make.
I'll make a video soon where I'll break down exactly how this Excel budget sheet works
but basically every day or two I go through all of my receipts and all of my online credit
card accounts to see every single purchase I've made.
Then I put these expenses in different categories living expenses groceries restaurants car
expenses entertainment and miscellaneous.
At the end of the month I took a total of how much I spent in each of these categories
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're likely to spend in the upcoming month.
Finally at the end of the month I enter my total income earned and then this formula
here calculates the percentage of savings I made.
I always aim to save around 40% of my income.
I've uploaded this Excel budget template onto my google drive account.
If you want to use it then click the link in the description box below click the download
button and then you should be able to open it on Excel and use it for your own personal
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 and whenever a big change
happens in your life.
Things like getting a new job a new partner or a new home.
The next step to building wealth is to grow an emergency fund an emergency fund is a stash
of money you set aside to deal with emergencies or anything unexpected that comes your way.
This money is not designed to make you rich.
It's designed to act as a buffer or a shield to protect your investments.
Let's say you get to a car accident and it cost you $2000 to repair your
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 you need.
Pay the mechanic and your investments are untouched.
Next time you get paid.
Put that money back into the emergency fund to replenish it.
But if you didn't have an emergency fund you might be in trouble.
You will have to tap into your investments and sell off stocks or bonds to get this two
thousand dollars.
The problem is you need this money today.
So if you sell off 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 the value will bounce back up in
a few weeks.
But now you need to pay the mechanic today and so you'll be forced to sell the stocks
at this lower value and as soon as you make that sale you've already lost money.
Even worse what if you can't sell your investments.
What if your investments are tied up in real estate or GICs.
It takes weeks or months to sell real estate and you need that money today.
So your only option is to charge that $2000 to your credit card and now
your monthly credit card balance is $2000 more than you planned.
So maybe you can't make that full payment this month and now you'll be charged 20%
interest on this debt so you can see having a few thousand dollars saved up in an emergency
fund can save you a huge amount of stress and a considerable amount of money.
If an emergency ever comes up 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 $3000 sitting in a savings account it will never lose value.
It will earn a constant and steady interest rate usually around 2%.
Personally I like to keep my emergency fund in a high interest savings account with Alterna
Alterna Bank and they pay me 2.3% interest on a monthly basis.
I like to keep between $3000 and $4000 in this emergency fund.
That's enough to cover all of my expenses for at least a month or two in case anything
were to happen and I were to lose my job.
But everybody is different.
If you have a mortgage and two kids you'll probably need more than $4000
in your emergency fund.
But don't go too far with this.
If you have $10,000 sitting in a savings account sure you'll be safe from
any possible catastrophe that might fall upon you but your $10,000 is only
earning 2.3% interest or $230 a year.
If instead you were investing this $10,000 you could be earning upwards of 7%
or 8% interest a year.
Once you have an emergency fund set up in a savings account you want to make sure that
you always have enough money in there to keep you afloat for at least two months.
Any money beyond that is frankly being wasted in a savings account and should instead be
invested the last and most fun step is investing everything I've talked to up until this point
has been 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 each and every year and avoid
paying huge interest and fees to credit card companies.
But all of these savings will only be earning you about 2% interest in a savings
account.
And honestly most of that 2% gain will be eaten up by taxes and inflation instead
if you invest your money you could 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 will have to work every single day until you die.
And these words could not be more true.
Most people rely solely on their full time job to make money.
That means that they have to work 8 hours a day or more just to get money at the end
of the week.
But if they stop working they stop getting paid and their income dies and because of
that you'll always have to work more and more hours and work harder and harder to get more
money.
But there is 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.
But 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 true way to become
wealthy.
I love talking about investments and so I'm going to be making dozens of videos just on
investing.
But for today I want to keep it super short.
Investing is any anytime you put money aside today with the expectation that you'll be
able to take more money out in the future.
For example if you go out today and spend $1000 worth of Starbucks coffee that
money is gone.
Sure that coffee gave you joy and it was fun while it lasted but as soon as that $1000
leaves your hands it will never come back.
Instead if you went out and invest that money by buying $1000 worth of Starbucks
stock now you are a tiny owner of the Starbucks company.
And so you are entitled to a tiny portion of the Starbucks profits for today.
You've still lost $1000 out of your bank account but every three months Starbucks
will pay you a percentage of the profits.
This is called a dividend so that $1000 you've invested is now paying you every few
months.
On top of that as the years go on and Starbucks as the company grows and grows your $1000
invested is now worth even more than that.
And if you want to you can now sell your Starbucks stock for let's say $1500.
In this way your $1000 investment has made you a $500 profit.
Plus all the accumulated dividends you've received over these past few years.
Compare this to that first case where you spent $1000 on Starbucks coffee.
That $1000 is gone and five years later you're still left with nothing.
This is a very simple example which hopefully illustrates what an investment is and how
it can make wealth grow.
And stocks aren't the only types of investments.
You can also invest in bonds mutual funds ETF real estate and you can even invest in
yourself by starting your own business.
I'll be breaking down all of these types of investments in my next video which I'll release
later this week.
And there you have it.
Those are my four key steps to become wealthy.
Pay off your credit card debt reduce your spending set up an emergency fund and invest.
These are the four cornerstones of my financial strategy and you should always evaluate these
four steps before you make any decision about your money again.
This will not get you rich overnight.
It will take years and years to grow your wealth but if you keep this mentality and
you keep these four principles in the back of your mind you will become wealthy.
One step at a time.
Thanks for watching guys and be sure to like comment and subscribe.
I'll be posting a new video every Thursday and let me know in the comments below.
What's your financial strategy.
Be sure to tune into my next video where I'll be breaking down the types of investments
and how to start investing.
As a millennial thanks everyone and I'll see you guys on the next episode of the Canadian
Canadian in a T-Shirt.
Bye guys.