If you don't start now, you'll hate yourself later
Are you wondering how other people can live it up and you always seemed to be struggling to make ends meet? It's more than likely that they either know things or know someone who knows the things you don't know about. You don't necessarily have to be making a lot of money to keep more of your it in own your pocket, but you do need to make enough in order to be able to put some aside on a regular basis. How do you know if you are making enough? Take a good look at your income and expenses. If you are spending more than your income then you may need to adjust your lifestyle to match your means.
But adjusting your lifestyle alone may not be the solution towards financial independence. There are many other ways that are available to anyone who is serious about achieving financial freedom. These strategies will vary depending on your circumstances, so there is no "one size fit all" when it comes to financial planning. Failing to plan is probably the biggest mistake people make, through no fault of their own, because it is difficult to plan something you have little or no knowledge of. Let me ask you this very important question. Where are you getting your financial advice, if you are getting any at all? Getting good financial advice can make a huge difference in creating wealth.
Times are different now, much more so than previous generations, especially the generation that struggled to make ends meet during the great depression of Canada from around 1929 to 1939. So, the strategies you use to handle your mortgages, children's education, investments for retirement and insurance to protect the family should be different too, and I'll tell you why.
Either your father or great grandfather would have grown up during the great depression, when unemployment was at a record high and a majority of the population was living below the poverty line. Universities were losing students for two principal reasons, because they couldn't afford the tuition and parents needed them to work on the farms to bring in as much income as possible. So, you see, the previous two generations were not as educated as we are today and they were a lot more prudent with their money. They were not concerned about inflation and wealth creation, there were little or no wealth for the average person, but were more focussed on savings and or debt elimination. Back then the choices for investments were limited and there were no real inflation from 1929 to 1946. [1]A dollar in 1929 was still worth a dollar in 19461, according to the bank of Canada inflation calculator, so they could have literally stuck it under their mattress and it would still have some purchasing power 20 years later. So, that's a much different mindset than this generation. And as the saying goes, "leaves don't fall far from the tree", meaning in this case that your parents learned from their parents and pick up a lot of their mindset, which was then passed on to you. So you really need a paradigm shift in the way you think about generating wealth, and that requires having an open mind towards new ideas and concepts.
Your mortgage is probably the single highest monthly payment and it is generally at the lowest possible interest rate because it is a secure loan with the house being collateral against it. Instead of putting more money on the mortgage payment than is necessary, look for ways to leverage this mortgage loan and invest the difference at a higher rate. I meet too many people who are so obsessed about getting rid of the mortgage that they have not created any wealth for themselves. And in the event of a job-loss or sickness they find themselves in financial hardship. It's true that you may have a lot of equity in the home, but you'll have to refinance or sell the home to realize the gains. Remember to focus on wealth creation and not debt reduction.
But don't get me wrong, you still need to pay your debts. There are good debts and bad debts and a mortgage is considered to be a good debt. As a matter of fact, any investments that appreciate in value can be considered good debts. Get rid of your bad debts like credit cards and car loans by paying off the highest interest rate loans first and putting more than the minimum payments required on them to reduce the interest costs.
Secondly, you lose a lot of your income to taxes, so your hard-earned income should be invested in ways to minimize taxes, such as the Tax-Free Savings Account, Registered Retirement Savings Plan, Registered Education Savings Plan and other tax advantaged vehicles. Simply keeping it in savings accounts does not take advantage of the preferential tax treatment available to us by the Canadian Revenue Agency because you pay tax on 100% of interest income, and generally these type of accounts do not keep up with inflation and is therefore eroding the purchasing value of your money. Instead, try to invest so that you are taxed on dividend income, capital gains or not paying any taxes at all. The latter can be accomplished by having your investments in a universal life insurance policy which have added benefits, such as creditor protection and principal guarantee.
The next thing you need to do is to take a closer look at all of your other living expenses (mortgage excluded) and see where you can trim the "fat". We have all heard the saying, pay yourself first (out of sight out of mind). Just commit to investing a percentage of your income each and every month in order to benefit from strategies like dollar cost averaging and the power of compounding.
Transportation, utilities and entertainment costs are living expenses that can be a substantial drain on your income. Nowadays with modern technology and the internet it has become very easy to start a home based business which can allow tax deductions for expenses that you would normally incurred anyways, such as transportation, entertainment, utilities and so on. So consider starting a home base business that you can do while still keeping your full time job. The bottom line is you need to be disciplined, you need a plan, you need to setup and stick to a budget and give it time to evolve to become reality.
Finally the time to start is now. Time can work for you and against you; why not make it work for you? Do you want to continue working during your retirement? Well, take charge of your future; now.
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[1] Data Source: Statistics Canada, CONSUMER PRICE INDEXES FOR CANADA, MONTHLY, 1914-2006 (V41690973 series.)
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