What behaviours undermine your ability to build wealth

Welcome to our Wednesday live session, Confidante community! Today, we’re diving into the energizing topic of building wealth while enjoying Rihanna and David Guetta’s music, a perfect summer vibe. We’ve had our fair share of rainy days in Toronto, but we’re here to bring the energy and discuss the top five ways we may unknowingly undermine our wealth-building efforts.

Wealth Building rule number 1- Don’t delay investing

First up, we tackle the importance of not delaying investing. Starting early in your investment journey allows more time for your money to grow and multiply. Those who invest small amounts early on may end up with more wealth than those who start with larger sums later in life. Let’s encourage our children’s financial future too by setting up investment accounts for them early on.

Folks do not underestimate time in working magic on the money that you are investing for the future.  One of the biggest wealth mistakes you can make is delaying investing…

Rule number 2: Create a sound investment plan and stick to it

Next on the list is creating a sound investment plan and sticking to it. Doing thorough research on available investments, understanding your risk tolerance, and analyzing the track record of potential investments are essential steps in this process. Staying invested is vital for your money to multiply over time. Jumping in and out of the markets can lead to missed opportunities and lower returns.

The reality is there is no perfect investment- they all come with trade offs

The worst thing you can do is have unrealistic expectations about the investment always doing well and be unpleasantly surprised.  This leads to knee jerk reactions of buying high and selling low- the opposite of making money in the markets.  Statistics reveal that the average investor does not earn the returns advertised in investment fund facts. Why? They don’t stay invested long enough to realize it. What’s long enough? Typically, at least 10 years!

Rule number 3: Focus on areas of your finances you can control

The third rule focuses on controlling what we can. While we can’t control external events, we can manage our spending habits and be intentional with our money. Tracking expenses, prioritizing savings goals, and making informed decisions about where our money goes can help us save more and secure our financial future. We can also put a plan in place for worst case scenarios including setting up an emergency fund for unexpected expenses that come out of nowhere, and personal insurance- to protect our cashflow and the cashflow for family we leave behind.

Rule number 4: Let’s talk about Fees: When it comes to fees- Aim to pay less

Did you know?

The average mutual fund in Canada charges 2.53 that fee includes the advisor fee, the trading costs and portfolio management fee. The question you need to ask yourself when it comes to fees is there a lower cost alternative that would provide a similar return?   That is why it’s important for you to understand that the rate of return quoted on investments net of fees to compare investment options available in the marketplace.  Check out software to help you compare one investment with another such as Morningstar or Globe investor.

Rule number four is also about managing debt wisely. Avoid bad debt, which includes borrowing for items that depreciate in value. Instead, focus on reducing debt and being cautious about taking on new debt. Interest rates may be beyond our control, but managing debt is well within our power.

Rule number 5: Respect your paycheque!  Don’t take the amount you give to the government for granted.

Confidante Community If you want a sense of how much taxes you pay, take out your last year’s tax returns, check out how much you paid in 2022, and add them up over your working years. If you earn what you’re earning now how much taxes will you pay over your working years?  Let’s look at an example. $100,000  of earned income in Ontario with no tax deductions you will pay about $26,000 in income taxes for easy math.  Assuming you’re 40 and still have 25 years to work, times 26,000 by 25 years and you would have paid $650,000 in some taxes.  Ask yourself are you truly willing to give up that much of your lifetime of earnings to the government?

What tax strategies are you using to reduce the amount of taxes you pay on the income you earn so that you can accumulate more wealth over your lifetime?  Strategies you can look at taking advantage of deductions available to you based on your personal circumstances such as an RRSP or taking advantage of an RRSP matching contribution with your employer. This is a great time of the year to tax plan with your accountant and financial advisor now that the tax filing deadline has long passed, and accountants have more time to help you to plan to pay less tax.

Building wealth requires discipline, planning, and a focus on what we can control.

By starting early, creating a sound investment plan, controlling our spending, managing debt wisely, and setting clear goals, we can avoid undermining our wealth-building efforts and pave the way to a more prosperous future. Join us next time for more financial conversations and energizing tunes. If you need support, talk to a financial professional or reach out to our team! Jody.euloth@askjackie.ca is available for a 30 min wealth building strategy session! Be sure to reach out to start building your financial fortress.