One simple trick to nearly quadruple your money

1 trick to nearly quadruple your money

 

What if you could go from having $244,815 over 30 years to $906,222 over 30 years using one simple trick? You don’t need to earn a bunch more on investments, in fact you don’t even need to change your investments. All you need to do is increase your savings rate year after year.

 

You see, if you were 30 years old today and saved $250 per month for the next 30 years, all while earning 6% on your investments, you would end up with $244,815 in your investment account. Now, there is nothing wrong with that, but $906,222 sounds a lot better to me.

 

 

savings comparison

 

 

Here’s how you do it.

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Can your advisor offer everything you need?

Can your advisor offer everything you need?

 

You’ve probably heard the terms financial advisor, financial planner, wealth manager, investment advisor, stock broker, financial consultant, etc etc. What do they all mean? Well those titles really don’t mean anything in Canada. The Ontario Securities Commission has started a process to regulate the usage of the various financial advisor titles, but even that doesn’t go far enough for the general public to understand the differences.

 

So what are the differences?

 

Well there are three primary types of licenses a licensed financial advisor can have. I specify “licensed”, because some financial advisors aren’t licensed at all. They can give you advice with budgeting & saving but can’t legally provide investment related advice to you. The three types of licenses are:

 

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Start Saving Now

start saving now

 

We’ve all done it.

 

We decide we are going to do something, or we know its something we need to do, and yet we find a way to put it off. Like many others, I used this approach during university and had to franticly binge study the night before most exams and papers were due. Fortunately, I took my finances seriously at a young age. However, I know this isn’t the case for most people.

 

Why do you need to start saving today? Well its simple. It will have an enormous difference in your future financials. Seriously. Saving early is the number 1 way to build wealth over your lifetime. I’ll show you an example of why.

 

Heather & Jack

 

Let’s take two twins. Jack & Heather. Jack & Heather are 20 years old today. Heather decides she wants to save $500 a month from the time she is 20 until she is 30. Jack would rather spend his 20’s living and start saving when he is 30. For both of them we will assume their investments earn a net return of 7% for the entire period.

 

Heather saves $500 a month for every month from 20 years old until 30 years old. By the time she is 30 she has saved up $86,009. Heather stops contributing. She never adds another dollar to her investments. She contributed $60,000 to her investments.

 

Heather savings growth chart

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What is an RRSP?

What is an RRSP?

The RRSP, also known as the Registered Retirement Savings Plan, is the primary retirement savings account for Canadians. The main benefit of the RRSP is the ability to defer income tax and grown investments tax free as a way of saving for retirement. In other words, money you put in today is not taxed, it grows tax free, and you only have to pay that tax when you withdraw.

 

RRSP Deposit chart

 

Just like the TFSA, an RRSP is not an investment. It is rather, a type of account that can be used to hold different types of investments. It is not uncommon for people to believe that the RRSP itself is an investment, as they are unaware of what they are invested in within the RRSP. You can hold a variety of different investments inside an RRSP.

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What is a TFSA?

What is a TFSA

 

 

A TFSA, or Tax Free Savings Account, is a type of savings account able to hold a wide variety of investments. The primary benefit of a TFSA account is that any income generated by the assets within the TFSA grow tax free. That is, if you put $100 into the account, and it grew to $200 you wouldn’t have to pay any taxes on this growth.

How a TFSA Works image

One of the most often confused parts of a TFSA, is that it isn’t actually an investment itself. I often hear people talk about how they have invested in a TFSA and are confused when I ask what it is invested in. A TFSA is not simply a savings account where you are paid a small interest rate on the value of money within it. You can however hold a high interest savings investment vehicle inside a TFSA and this is a very common option at the bank and is the reason for the common misconception.

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