by Fabien Major
Let me tell you a personal anecdote. After all, my three boys were born between 1982 and 2004, which means they are millennials. Although I’ve worked in wealth management for over two decades, I was always hesitant about giving my kids too much financial advice. However, this is what I wished my father would have told me about managing my finances.
For many people, finance is a boring topic—but so important. What you’ll read in this post may dramatically change your future. No, I am not going to numb you with talk of retirement; instead, I’m going to discuss financial INDEPENDENCE.
As a parent, I have three wishes for my children. I want them to be healthy, happy and independent. For my boys’ health, I cannot say a word. In fact, they often teach me things about living a healthy lifestyle! In regards to their happiness, they’re off to a great start. But with respect to their independence, we’ve still got some work to do.
I’ve put together the top seven tips that can make a huge impact on a person’s financial health. The ultimate goal is to set aside enough capital so that one day you can have the freedom to say no to a job you don’t like. To have the freedom to go on vacation and travel—when and where you want. The financial freedom that I hope my family and millennial readers will achieve should also give you more time to spend with the people you care about. Why? Because time is THE number-one and most precious resource that both the wealthy and the poor often lack. Financial independence gives you time. Don’t ever waste it.
Let’s face it: financial institutions are not looking out for your well-being. They want to make profits. However, in these same companies, many skilled professionals really do want to help you and have your best interests top of mind. You need to learn how to recognize these types of professionals. Oftentimes, they’ll greet you with questions, rather than a sales pitch. They’ll actively listen to you and remain frank with their suggestions. They will not hesitate to point out the pros and cons of each financial product. Each time you step foot in a bank or other type of financial institution, ask a lot of questions, double check data, and analyze everything that is presented to you as a “great offer.” Don’t forget that finance is big business and financial institutions will always try to sell you something.
As much as possible, make purchases using your own money. One or two credit cards are more than enough. If you only pay the minimum balance on your credit cards to stay afloat, you’ll find yourself in a never-ending circle. You must view credit as an alternative means to buy something—which you’ll pay back in full at the end of the month. A mortgage or commercial loan for a SME is a smart debt. Both can help you acquire assets that will gain in value over time or generate revenues.
In order to achieve financial independence, you have to spring into action today. Having a small salary is no excuse. Anybody with significant wealth will tell you that they built their fortunes with just a few dollars. Start by setting up automatic transfers to make investments that correspond to your profile; whether you can transfer $50, $100, $300 or $500 every two weeks or month, this sound strategy will go a long way into building your personal wealth. Mutual funds and exchange-traded funds (ETFs) offer compound interests that can cause a snowball effect. Depending on your future projects, tax bracket and tolerance for risk, you could contribute to a tax-free savings account (TFSA), Registered Retirement Savings Plan (RRSP), or an ordinary investment account. For example, if you set aside $250 a month in a fund that generates 6%, you will have amassed $114 713 in 20 years.
Managing your finances is a necessary evil. You have to overcome your demons and stop perceiving your budget as a boring and annoying task. Nowadays, several tools, including Excel and Numbers, and apps, such as MINT can help you to keep your budget in check. If you have a regular job and cannot make ends me, say with $50 000, you won’t be able to do so even with $2000 000 or one million dollars. It’s entirely up to you to properly manage your finances and live within your means. Mistakes and setbacks are also your responsibility. It’s your duty to educate yourself, become curious about your finances, and meticulously manage your money. If you are able to manage your capital like a pro, you’re well on your way to managing bigger sums later on. In a nutshell, the more rigorous you are with your spending and investments, the more likely you will build your wealth.
The equation for prosperity is very simply. In fact, it’s so simple that many Canadians neglect it!
First: R – E = S. This means: your REVENUE must be higher than your EXPENSES. What’s left over is your SAVINGS.
Then: S x T x % = R. Your SAVINGS, when invested properly over TIME, will generate a good RETURN ON INVESTMENT, which in turn will provide you with additional REVENUE later on.
Millennials have the same dream as Gen Xers and Baby Boomers: making money while they sleep! Wealthy people have one trait in common: they have at least five sources of income. They may get revenues from rental properties, dividends, interests from investments, fees from speaking engagements, book royalties, professional consulting contracts, a salary from their businesses, etc. You can do the same; however, make sure you sharpen you analytical skills and keep your cool.
This may sound like a no-brainer, but unfortunately thousands of Canadians forget to pay their income taxes and other taxes on time. The interest and penalties that you have to pay when you’re late represent a lot of money that you cannot take advantage of. Get your affairs in order and make sure you remain well-organized when it comes to your income taxes. That way, you’ll rest easy and keep the focus on your future projects. If you have a complex situation, rely on income tax software or hire an accountant who can guide you through the in’s and out’s.
Always know your credit score so that you can avoid nasty surprises. Your credit score is your financial DNA. Verify it often and bring up any irregularities with credit agencies, such as Equifax and Trans-Union. By reimbursing the capital and interest on loans and credit cards, you’re showing potential lenders that you are a serious and reliable borrower. The number of cards, loan requests, loan sums, and payment regularity are just some of the factors that will impact your credit score.