The 5 Essentials For Getting Started On Your Wealth-Building Journey

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The 5 Essentials For Getting Started On Your Wealth-Building Journey

"If you don't know where you are going any road will take you there"

If you know where you want to go it's best to take the time to discover the most direct route. Here's the first dilemma that you will face on your wealth-building journey - detours. Time is money and mistakes are costly. If you can avoid common mistakes and do it right the first time, you will get to where you want to be a lot sooner. Here are 5 essentials for starting out on the right foot and in the right direction.

1. Invest in yourself and get educated.

The temptation is to want to get to where you want to go fast. This is why lotteries are so popular - they can make you an overnight millionaire. The problem is, the odds of winning are extremely low. Even those who do win, rarely make it last because they have no skills for looking after such a windfall. They are usually broke within months. The temptation is to look for investments that can make you rich quickly. It’s not necessary and in fact, you can build significant wealth over your lifetime with 8-10% annual growth. The first step in the process is growing your knowledge of investing, real estate, using leverage, taxation, and so on. Take online courses, read, attend seminars, practice.  


2. Earning a good income.

You may not be a high-income earner, but you need to be consistently earning what you are worth. If you have a degree or a trade and you are age 25-30 you want to be making $60-80K/year. As your experience increases do what you need to do to earn more, which often requires changing employers. Go to where the work is. That may mean a different city or province. Keep improving your skills and hire-ability. New certifications and courses, etc. Be diligent and be the best at what you do. The truth is that it's crowded at the bottom, not the top. Hard-working, diligent workers who show up, mind their business, and do their work well are in short supply. Employers notice and promote this type of person.

This happened to Nancy at her first job in her investment career. She had been in the industry only 6 months when her boss called her into her office to tell her about another position opening up soon in the office working with a different team. She said she had applications for the position from several others with many more years of experience but if Nancy wanted it then she just needed to apply and "we never had this conversation". This new role more than doubled her income and put her on a better trajectory for the rest of her career because of "who" she worked with in that new position. Never underestimate who is watching and noticing how hard you are (or are not) working. You reap what you sew.

Another thing within your control is taking advantage of all of the employer-matching savings plans or incentives in your benefits plan. No one is going to explain them to you. It is up to you to go onto your HR website and figure it out and enroll to get the maximum possible. 


"I'm a great believer in luck, and I find the harder I work, the more I have of it." ~ Thomas Jefferson


3. Mindset.

Your life will go in the direction of your thoughts. The best book you can read is called Think and Grow Rich by Napoleon Hill. It's not a book about money as much as it is a book about having the right mindset. The basic premise of the book is that your life will go in the direction of your thoughts. If you constantly think about opportunities then you will be amazed at how many opportunities come your way. Have you ever noticed that when you buy a car, let's say, a VW bug, that all of sudden you see VW bugs everywhere? Nothing changed except you are now more aware of VW bugs now that you have one. It's a similar principle - the more we think about something the more it happens to us and for us.

You will always get what you're looking for.

Golfers are taught to visualize hitting the ball and it landing exactly where they want it to land. You follow the mechanics and visualize the ball flying through the air, landing on the ground, and rolling up close to the pin. It's a part of the pre-shot routine. You can do the same thing. Visualize what success looks like for you. Money in your bank account. A paid-for home. A new car. A vacation. Education for your children. Giving to charities. Time freedom. Go ahead and dream awhile. It's not magic - you still have to do the work. What it really is, is a focus. In some ways, it's an obsession. That may be good and bad - I'll explain later.


4. Building a Financial Plan

One that can match your values and goals with your behaviors. You don’t build wealth accidentally, you follow a plan and adjust as the circumstances of your life change. Building wealth is not a matter of luck, it is intentional. Imagine an airplane flying from Calgary to Halifax. Before the pilot leaves Calgary, he or she would file a flight path. If during the flight they veer off course they don’t return to Calgary and start over; they adjust and get back on course. Another benefit of working with a financial planner is they will hold you accountable to stay on the right path toward meeting your goals.


5. Buy a house

Use the Home Buyers Plan. As soon as you are making a decent income start borrowing enough (or as much as you can) to maximize your RRSP contribution room each year. Use your tax refund to pay back the loan as fast as possible. Once you get to $35,000 you can use that RRSP money, along with any additional savings to buy your first home. Buy what you need and no more. Avoid the temptation to buy a massive house to impress your family and friends. You now have 17 years to repay that money to your RRSP ($2058/year).


Understanding and Using The Smith Manoeuvre. There are many variations of this strategy and I’ll start with 2 simple ones.

  • Readvanceable Mortgage. You need at least 20% equity in your home to qualify. A re-advanceable mortgage is similar to a mortgage line of credit, with a few important differences. Each re-advanceable mortgage includes two components; a mortgage and a line of credit that you can pay down and borrow against. With each mortgage payment you make, some of your payment goes towards paying down the principal or amount borrowed, while the rest of your payment goes towards interest. And with a re-advanceable mortgage, each mortgage payment increases the amount you can borrow on your line of credit while paying down your mortgage.

So for an $800 mortgage payment with $300 going towards principal and $500 towards interest, the credit line portion of a re-advanceable mortgage would increase by $300. In essence, you could access “readvances” on your mortgage and additional home equity with every payment you make.

Hybrid Mortgage with HELOC.

Again you need 20% equity and in this case, you can have a portion as mortgage and a portion that is available to you as a line of credit. The mortgage will have a fixed interest rate and monthly payment, but the HELOC portion allows you to just pay interest only. You can then use the HELOC to make other investments like stocks or real estate and then you are able to deduct the interest as an expense on your tax return. You can then use some of your investment gains to pay off your mortgage faster.

Conclusion: How do you build wealth?

Get started! Be intentional! Take initiative, work hard and do all things to the best of your ability! This is how you create your own luck. 


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