The secret to building wealth when you’re young lies in your ability to:
- Build good habits.
- Maintain a frugal lifestyle for a number of years.
- Make your money work for you.
The younger you are, the better chance you have of building up a large sum of money for retirement, since you have one huge advantage over the older generation: time.
Here are some ways to implement the above principles into your day-to-day finances to build wealth while you’re young.
Scenario #1 – Still in School
Got student loans? You can still build assets!
Don’t put 100% of your funds into paying off debt, stash some of it away – even a small portion, every single month and put it in a TFSA. If you are lucky and have a low interest rate on your loan, the investments in your TFSA may beat paying down debt. Remember, interest on government sponsored student loans generates a tax credit equal to 20.06% (this varies by province) of interest paid. So your after-tax cost is lower than the stated rate, potentially making investing more attractive.
Secure internships during summer
Typically, internships pay quite well and will allow you to put away several thousand if you are able to keep your living expenses low – perhaps living with Mom and Dad isn’t so bad after all?
Work part-time during term time
This will allow you greater networking opportunities for when you do graduate and prepare you in advance for paying off your student loans. As a consequence you could end up increasing your earning potential and reducing your debt!
Look for student grants
Grants are a huge opportunity to get some free money that you don’t have to pay back. Only in school part-time? There are grants for you, too! Find out more about how you can apply on the canlearn website.
Scenario #2 – No School, Employed Full-Time
Maintain a frugal lifestyle
If it saves you money, perhaps consider sharing with roommates to split the utility bills and monthly payments.
Despite popular opinion by Generation X, renting is not throwing away money if it allows you to put the money you would otherwise spent on substantial purchase and maintenance costs into well-planned investments.
Read 14 ways to save money without sacrificing your lifestyle for everyday savings that won’t require huge changes in your day-to-day lifestyle.
Learn to love minimalism
Find something that you love to do. Try and take up something which produces more than it consumes – like a competing in a sport, playing an instrument or learning to code.
Find an inner-strength that allows you to create – we naturally become better at things we practice and we tend to practice things that we love. Once we are able to produce something better than someone can do for themselves, we are able make money from it.
This may very well end up being a source of income for you in the future and it provides you (and possibly others) with entertainment at the same time.
Take advantage of RRSP contribution matching.
Does your employer match your savings in an RRSP? If so – there aren’t many other places you’ll get free money. Max this out at your first opportunity!
Start Saving Early
The sooner you start saving in life, the less money you have to put aside to reach your goals. This is because as your money starts working for you, your earnings compound by the previous years’ growth.
Let’s take a look at an example. Mary and Ann are both 35, and they both want to retire at age 60. They want to have $1,000,000 in today’s dollars before they retire. Mary started saving for her retirement when she was 25, but Ann is just starting to put money aside for hers. The table below shows how much each have to save to reach their goal.
The Effects of Saving Early in Life
|Age at Which Started Saving for Retirement||25||35|
|Savings per Month||$728||$1479|
|Total Amount Saved in Order to Have $1,000,000 in Retirement||$305,765||$443,597|
|Assumed Annual Investment Return (after inflation)||6%||6%|
“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it. ”
– Albert Einstein
If you take action on the above principles today and you’ll be well on your way to a happy, wealthy and work-free retirement.
Liked this post? Take a look at the Top 5 Financial Tools for Managing Your Money for some great resources to help you manage your wealth, or let us know what you’re doing to grow your wealth in the comments below.