Most of us yearn to be healthier, fitter, younger-looking. We spend countless hours researching and shopping for creams, clothing, accessories and the latest health trends. Yet, we cannot seem to find the time to think about or understand our finances, which, truth be told, is really what will give us the freedom to take care of ourselves better. It’s really not that difficult to get started on growing our own wealth. Here are some easy tips to get started, but having a trusted financial advisor to help will go a long way to ensuring you succeed!
Create automatic contributions to a saving or investment account
Hopefully, you are able to earn more than you need to spend. If you are fortunate to be in that category, recognize your privilege — you can save! Even if you feel you may not be able to save, challenge yourself. You may in fact be able to reduce your spending in order to save. Do you buy your lunch or your coffee, shop at convenient yet overpriced stores? Changing some of your habits, even just some of the time may meaningfully reduce your expenses. The goal is to transfer money from your chequing account into another account designated for savings, and ultimately investing. Try to target an amount that feels doable, which can be automatically withdrawn from your chequing account and go directly into an investment account. I have clients whose accounts have increased significantly by making this a systematic transfer. And they do not even remember they are contributing or realize they have less at their disposal for immediate spending.
Start investing any amount ASAP
There is a common misconception that one must wait until they have a certain minimum amount before they should or can start to invest. This is false! In fact, the power of compounding teaches us that any amount invested for a longer period will reap more rewards. For example, if you invest $5K each year for 5 years earning 8%, and then let it grow for 25 years earning 8% without adding any money, you will have $251K in the end. Whereas, if you wait for the first 5 years and then invest a lump sum of $25K for 25 years earning the same 8%, your total investments will be $171K. The time is now. Any amount that you can put aside to invest will make a difference to your total wealth in the end. And just like the dopamine hit that comes from buying a new top, purse, sunglasses, there is a dopamine hit that comes from seeing your investment portfolio or savings reach new heights— plus the sense of empowerment, independence and freedom it can give.
Be aware of your investment fees
Investing costs money and the price you pay for the service matters. Yet most people, when asked, cannot tell me what their investment fees are. We know what we pay for in rent or a car lease, yet we do not pay attention to how efficiently we are growing our wealth. Think about it. You are trying to make money. Therefore, every additional dollar you pay to earn it takes away from the amount that ends up in your pocket (figuratively). Do not be afraid to ask and then to verify or confirm. There are various ways that you can be charged by an investment professional. Some charge commissions, some charge fees on the total value, transaction or transfer fees and some products may have additional fees embedded. This could create layers of fees. Ask what the fees are and then ask if there are any potentially hidden fees. Be aware that when you are shown returns, they may be gross returns (before fees) or net of fees, so always ask what the actual fees are.
Max out your TFSA and your RRSP subject to exceptions
Your Tax Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP) are registered accounts created by the government to help you save money. They each have their own particular benefits and planning opportunities. Everyone should know that they pay tax on the money they earn, whether it is money earned as an employee, a business owner or an investor. Therefore, the amount you earn is not the amount you can spend. This is an important distinction for many reasons and necessary for understanding the perks of investing through a registered account like a TFSA or an RRSP. A TFSA is for individuals who are 18 years old and over and there is a specified amount that can be contributed every year (totalling $75,500 in 2021 if you were 18 in 2009). An RRSP is only for individuals who earn a salary and again, one must ensure they are contributing the right amount (check your tax assessment or ask your accountant). The money you invest in your TFSA is after you paid tax on it and in your RRSP it is before. So, it might sound like the RRSP is better; however, when you take money out of your RRSP (which has been growing tax-free) it is taxed as income and money taken out of your TFSA is not taxed at all. For most people, the goal is to maximize both. If you make a big salary then an RRSP will give you a meaningful tax deduction and then a potential refund you can put into your TFSA. That said, if you cannot afford to contribute to both and you are not making a big salary, then it may make sense to maximize your TFSA first.
It is always advisable to find a trusted investment professional who can help with your particular situation and help make sure you are on the right track to build your wealth in the way that makes most sense for you.
The article is provided for information purposes only, it is not intended to convey investment, legal, tax or individually tailored investment advice.
Article contributed by Lindsay Hollinger.
Lindsay Hollinger (https://www.instagram.com/lmh_wealth/) joined the firm in 2014 and is a registered portfolio manager. As such, she is fully dedicated to the management of private accounts.
Before joining Jarislowsky Fraser, Lindsay practiced tax law at McCarthy Tétrault LLP since 2009. She is still presently a member of the Québec Bar Association.
Lindsay is an alumni of the Wexner Heritage Program and is a member of the board of the Jewish Community Foundation. She is also a member of the Volunteer Engagement Program for the Jewish General Hospital.
Ms. Hollinger earned her B.A. (Honours) in Philosophy from Queen’s University and a BCL/LLB (with distinction) from McGill University. She also completed a LLM in taxation from École des Hautes Études Commerciales – Montréal and is a Chartered Investment Manager (CIM).
Feature Image via Financial Times
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