10 Secrets to Building Wealth
Building your wealth comes from a combination of three key elements: debt management, wealth creation and wealth preservation. Find out what this means and get some tips that will help you save more.
Begin a monthly savings program that is easy to live with and then grow your contributions over time. This will be far more effective than saving with sporadic lump sum deposits.
Take Advantage of Compound Interest
Albert Einstein, when asked what he considered to be the most powerful force in the universe answered: “Compound interest!” So take notice. If you leave your savings to grow each year, you will earn interest on top of interest, and this is called compounded interest. The longer the interest compounds the more powerful the effect is on your savings. For example; with a 5% interest rate on an annual $2,000/year savings programs, a 20 year old will amass by the time he turns 65 – $ 335,370. Most of this ($245,370) will be from compound interest alone.
Put your long term savings in investments; such as mutual funds, which offer the potential for higher returns. By simply increasing you earnings rate by 4% (for a total of 9%) our 20 year olds’ nest egg in item 3 above would grow from $ 335,370 to a comfortable $1,050,000.
Get a RRSP
Save within a Registered Retirement Savings Plan (RRSP) to shelter your earnings from tax and get a tax refund to boot.
Switch to a Line-of-Credit
With credit card interest charges of more than 18% you are paying twice for your purchases every 3.9 years. Save the money instead by consolidating in a lower cost line-of-credit.
Get a RESP
Save for your children’s education in a Registered Education Savings Plan (RESP). It provides both a tax shelter for your money and a federal grant of 20% on savings of up to $5,000 per year.
Get a Mortgage Broker
If you are looking for a residential mortgage save yourself the bother and use a mortgage broker instead. They will get you the lowest rates, do all the haggling and typically it won’t cost you extra since the banks pay the brokers a finder’s fee. Over the life of a mortgage you can save thousands of dollars and become mortgage-free years earlier.
Take Advantage of TFSA
For your short term savings and any additional long term savings take advantage of the new Tax Free Savings Accounts (TFSA). You can save up to $5,000 a year in a TFSA without ever having to pay tax on earnings or withdrawals.