Build Wealth in Canada

How can one build wealth as a Canadian?

Building wealth”, just as “risk management” is a rather intimidating term but both can be simplified and are achievable with the right mindset.

Wealth accumulation is a rather simple process if you take away the get rich quick mentality.

You just have to open your eyes and seize the opportunities specially while you’re on your prime.

Mind you, building wealth isn’t just about building the next Amazon or Facebook and while finding the next unicorn company is a sure-fire way to wealth, it’s just not for everyone.

Generally, there are two ways that you can accumulate wealth in Canada:

  1. Start a business and invest a portion of your profits.
  2. Invest a portion of your income whatever it is that you’re doing to earn a living.

Both equations involve investing and unfortunately, both involves patience and hard work.

So whether you’re in business or you work for the man, you have to work hard and be smart with your money.

More so, if you have a business or you are a highly-paid professional, you’ll have more leverage when it comes to wealth building than when you are a low to mid-income earner but it doesn’t mean that you can’t build wealth if you’re working at minimum wage.

The truth of the matter is, you can start to build wealth whatever amount of money it is that you make on a monthly basis and even if you’re someone who only earns minimum wage in North America; you are richer than most people in developing countries.

So don’t be discouraged even if you think that you only make a small amount of money each month for the old adage holds true!

It’s not about how much you make, it’s about how much you keep.

And you don’t have to wait until you “become rich” before you start investing.

As Walter D. Wattles (The Science of Getting Rich) puts it, “those who are rich already have the capital” and in order for you to have the capital and “become rich”, you should put in the effort and the patience of slowly accumulating wealth through saving and investing at least part of your “hard-earned” money so that hard-earned money of yours can do the heavy lifting in the future when you’re no longer able to do so.

build wealth canada - financial advisor winnipeg

The Best Time to Build Wealth

Did you know that the best time to build wealth is from the moment you’ve earned your first paycheck?

Yeah, I missed that one too!

That’s because financial literacy was never taught in school.

The traditional education system (school) equips us with the knowledge and skills to land (and hopefully keep) a job but it never teaches people how to handle, keep and grow money to build wealth.

If you’ve missed this golden nugget, keep in mind that it’s never too late to get started.

No one ever misses the boat not unless they deliberately decided not to get on board each time the boat arrives while they are still capable of boarding.

Please don’t allow yourself to miss the wealth-building boat to wait and see how much it really is that you’re going to get at retirement from government pensions as it is our obligations to our future selves to accumulate assets so we don’t have to work past retirement age should we choose not to.

Most people at retirement have to go back to the workforce at least on a part-time basis in order to supplement their government pensions.

This is because people get too busy working (and spending) while they’re on their prime that they miss the opportunity to build wealth for their future.

Why Most People Can’t Build Wealth

instant gratification - financial advisor in winnipeg

Most people can’t build wealth because they would have failed the “marshmallow test” should have they taken it when they were kids.

Most adults (not including you of course) are grown kids in age yet not in maturity when it comes to handling money.

The number one reason why most people can’t build wealth isn’t the amount of money they make but because they lack the patience to defer gratification. 

Everyone wants everything, “now”!

This is the reason why most people complain that their expenses increase at par with their income whenever they have a raise and that “they live paycheck to paycheck” no matter how much they make.

The traditional education system taught everyone how to make money by working for money but it never taught us how to build wealth to be in a position where we have enough money to work for us.

So people grew accustomed to working for money not thinking that time will come when they can no longer work for money and that at some point in time, they should have money working for them instead.

The thing is, we can’t really make money work for us if there’s not enough wealth built.

Whether or not you were born here, to build wealth in Canada, you have to forget everything you’ve learned about getting rich because most of our programming when it comes to building wealth is connected with instant gratification.

It’s natural for many of us to want things NOW, so instead of having the right mindset of building wealth over-time, people excitedly jump into get rich quick schemes and buy things they really can’t afford to “look rich”. 

Not realizing that the best way to build wealth is “over-time”.

The majority of us are “programmed” to take the shortcut when it comes to becoming rich or accumulating wealth that’s why so many people try to keep up with the Jones’s and the lifestyle they see on TV or the internet. 

The end result is a rich lifestyle but poor financial well-being.

Wealth building takes time…

It’s a bit faster if you’re a high-salaried professional or a successful business owner but there are a lot of high-income earners who are rich but aren’t wealthy.

Building wealth is the accumulation of assets over-time in such a way that the income from your assets, funds, or portfolio is more than enough to maintain your lifestyle even when you decide that actively working for income is no longer for you.

Short Term Vs Long Term Wealth Building

Of course, not all forms of wealth building are long term but long term wealth building is of the utmost importance.

Just like your other life goals, wealth building should be segmented into short term and long term goals.

You might wonder as to why I didn’t suggest having an intermediate goal which, at the grand span of things may not really be that important and would only complicate things but at your convenience, you may include such.

To keep things simple though, keep in mind that both short-term and longer wealth-building goals should be part of your wealth accumulation equation.

Short Term Goals

There are some things in life that require a certain amount of wealth in the short term which depending on where you are in life, your life goals and lifestyle may or may not include the following:

  1. Emergency Fund
  2. Kid’s Post-Secondary Education
  3. Home Purchase
  4. Purchase of Investment Properties
  5. Business Capitalization / Acquisition
  6. Vacation Fund
  7. Wedding
  8. Anything else that may require a lump sum amount of money.

The purpose of short term wealth accumulation is for you to have the money to meet short term financial goals, preferably ones that will help you improve your financial well-being.

Establish an Emergency Fund

build emergency fund - financial advisor winnipeg

Establishing an emergency fund is such a good idea that it will help you avoid from dipping into credit cards and lines of credit in the event of an emergency event where you find yourself in a situation where you need a lump sum amount of cash or you need a temporary source of cash flow.

Ideally, everyone should have at least 6 months worth of income stashed away in an emergency (fund) account (I know, this is hard to do – but possible!), especially if you’re working for someone else as an employee because as you may be aware, there’s no such thing as security of tenure in Canada; anyone can get laid off anytime.

The purpose of an emergency fund is for you and you’re loved ones’ financial security; it protects your family from financially struggling in the event of job loss or other financial emergencies.

For the majority of us, we may not think that there’s an importance of building wealth to establish an emergency fund because most would have deep lines of credits available or they can always take a personal loan in the event of an emergency but dipping into credit is such a bad idea due to the fact that we don’t really have control as to when the bank decides to increase their interest rates on our existing balances.

The smarter way to manage your finances is to slowly build your own source of money in the event of an emergency instead of relying on debts.

Fund Your Children’s Post Secondary Education

resp canada

As someone coming of Pilipino descent, our culture puts a huge emphasis on the importance of post-secondary education.

I came from a country where competition for employment opportunities is fierce and where most university graduates have to settle with jobs that didn’t really require a university diploma. 

As such, putting our kids through college or university is still part of our roots because we believe that a solid education will still help our kids achieve farther things in life and if it isn’t enough, kids are encouraged to seek further education in the graduate school arena.

Don’t get me wrong, you may think that a post-secondary degree isn’t important because the richest men (and women) in the world (i.e. Rachael Ray, Bill Gates, Mark Zuckerberg, Steve Jobs, and the like) were college dropouts and didn’t have any university diplomas. 

Keep in mind that these people were the exceptions to the norm and as parents, we would like to think that our kids can achieve things that these rich and exemplary men and women did but that’s the thing, not everyone has the drive and the mental aptitude to build the next Facebook, Apple or Microsoft. 

Of course, this is not to say that your kids will have a bright future guaranteed by a university diploma but by building wealth for their post-secondary degree, you’re giving them more options. 

What if your kids wanted to become a lawyer or a doctor?

Having the funds to pay for their post-secondary, makes it easier for them to achieve these career goals.

And even if they wanted to start an entrepreneurial career, having secured a post-secondary education gives them a more solid foundation and a safety net should everything else fail in their entrepreneurial endeavor.

Lucky enough that we live in a country that supports wealth accumulation for post-secondary education.

Very few countries would offer you government grants just by saving for your kids’ future education.

Buy A Home

financial advisor winnipeg home ownership

For many Winnipeg families, the purchase of their primary homes is the biggest purchase of their lives and you’re someone looking into possible home-ownership in the next couple of years.

Building wealth to acquire your family residence is a money-smart move for you and your family.

Regardless of how much you currently make, getting into homeownership isn’t that difficult if you’re willing to build by keeping a portion of your income toward the downpayment and closing costs of your first home.

Instead of just shedding away money each month toward your rent payment, homeownership helps you slowly build wealth (equity) while you’re diligently paying off your mortgage and as your home increase in value over time.

In buying a home, I don’t recommend that you max out your mortgage approval amount.

Just buy what you can afford, preferably in a good area; this way, you don’t stress yourself and your spouse with the cost of homeownership. 

It’s true that it’s a bit expensive to maintain a home of your own than when you’re simply renting your abode but then keep in mind that you’re slowly purchasing the property and that bills and property taxes are just part of it.

Over time though, your ownership (equity) increases from within your home and when you decide to liquidate it later own, you’re most probably be able to sell it at a higher price than your initial purchase. 

The longer you hold onto it, however, the higher will be the sell-out as long as you manage to maintain and keep your property in good shape.

Raise Capital to Invest in Properties

After you purchased your family residence, you may want to get into investment properties. 

As mentioned, real estate usually goes up in value over time so purchasing a couple of investment properties of your own isn’t a bad idea too.

Keep in mind though that investment properties are businesses in themselves and as such has their own degree of risks and returns and managing them is far from what you hear from real estate investing seminars.

Real estate investing takes work and managing tenants may be frustrating at times so take the time to learn the ins and outs before pulling the trigger into your first investment property purchase.

If you’re purchasing a property for investment purposes, be prepared to put in at least a 20% downpayment on the purchase as this is what’s required by virtually all lenders.

If you have some equity built from within your residence, you can leverage that as your down payment but then again it depends on your comfortability and risk tolerance. Otherwise, you’re better off building wealth slowly to purchase your investment property.

There are far more strategies available when it comes to purchasing an investment property so take the time to do your research as having the money for a downpayment is only a little part of the whole real estate investing scene.

Fund a Business Venture

If you’re entrepreneurial, part of your wealth equation may be owning a business of your own. 

In any business endeavor, some sort of capital would always be required; you may think otherwise but registering a business or corporation alone costs money, which in itself eats up part of your capital.

In the financial services industry, for example, a lot of people can simply get a license to sell insurance and investment solutions and you may think that there’s really no capital involved.

Well, if you’re starting out in the financial services business, you can start with very low capital by only covering the finance course that you wish to specialize in and the licensing. 

After you acquire your license, you can start operating your business as a solopreneur by offering value-based financial services to your clientele; to keep your operations legal, you have to make it a point that your license is active all the time and that you are subscribed to an errors and omission insurance for your practice.

All these require capitalization, not so much compared to when you’re building a brick and mortar business like a restaurant or a retail store but would still require capital.

To keep yourself informed as a financial professional, you also have to invest in yourself by attending business, personal development, and industry seminars.

Industry seminars provided by solutions carriers are always free but as a professional, you have to attend paid seminars as well to keep you on top of what you do.

If on the other hand, you intend to operate a franchise or a brick and mortar store, you’ll need more capital and most people won’t have much that’s why only a few people venture into businesses because most believe that they don’t have the capital but opposed to popular belief, capital can always be raised, over time.

Not as fast as you would have hoped but taken the time to build wealth to finance a business venture would be worth it because the additional source of income that your business brings would empower you to build more wealth down the road.

Fund Your Vacation?

vacation fund - tfsa

Some people might cringe at the idea of setting aside funds for fun or vacation but the reality is, sometimes you may have to spend some time on leisure and instead of charging everything on the card, you will be better off financially if your planned vacation is well-funded prior to taking that flight.

If you’re an extreme wealth builder, you may or may not agree with the idea of taking a break but for most people, this is how we get re-energized to come back to our careers fresh and with “re-charged” motivation which makes us more productive.

Fund Your Wedding

A lot of bride’s dream of the “perfect wedding” but if you and your partner are practical, who would want to have a better life and future for your small family, a simple wedding would suffice.

Of course, this is not to say that you can’t have a grandiose wedding because as financial advisors, we can only “advise” and “suggest” so as to realign your spending to what truly matters but then weddings are important too, so it’s really up to you.

Be it simple or grandiose, weddings require funding which in itself should form part of a single person’s short term wealth building plans because any goal should have the necessary funding set aside.

financial advisor winnipeg - funding your wedding

Build Wealth for Retirement

The pinnacle of your wealth accumulation efforts (and the most important) is long-term wealth building to fund your retirement.

True wealth building is the long-term compounded accumulation of your assets over time and very few people achieve this in their working lives.

The traditional education system is partly to blame but as well as the society in which we live as a whole due to the fact that people are programmed to spend.

Long term wealth building, if you don’t have such a strong financial discipline, can be a very hard feat because most people would have already spent their money before it ever lands their bank accounts, through credit cards, of course!

So what is the key to long term wealth building?

Two of the short term wealth building goals I’ve pointed out earlier in this article were:

  1. Purchase of investment Properties
  2. Starting a Business

These are not necessary to build wealth but can make your wealth-building journey faster.

That’s because, the more cash flow you have, the faster you can build wealth due to the fact that you have more investible assets.

The true key to long-term wealth building, however, is simply setting aside a portion of your income and investing it over time, collecting compounded growth for a very long time.

build wealth canada - financial advisor winnipegA wealthy person simply is someone who doesn’t have to actively work for money and yet all of his or her financial needs are well taken care of by income or annuities of the assets he or she has accumulated over time.

So is it safe to say that a wealthy person is someone who is retired?

The word “retired” has been used loosely in the last couple of decades and can be misleading; an elderly who’s struggling financially can be considered “retired” from the workforce due to old age but then the reality is, financially; they can’t really retire. A wealthy person, on the other hand, can “retire” at any age.

Retirement is that stage in our lives that we no longer have to actively work for money which can occur at any age if you have more than enough wealth to sustain your lifestyle of choice.

You can be “retired” and still work because you choose to and not because you have to.

The difference is, that the “financially retired” person who still works at their retirement years can choose to stop working any time while the latter cannot because they can not sustain their lifestyle should they stop working entirely.

Mind you, about half of Canadians can not afford to fully retire at the age of 65 due to financial reasons.

Building wealth is the key to true retirement, the earlier you start, the earlier you’ll achieve this state. 

Because, being wealthy is being truly retired.

If you’re young and just starting, start building wealth as soon as you can because the best time to start saving for retirement is the moment you earn your first paycheck!

Saving and investing a portion of your income is the key to true long term wealth building.

Yes, no matter how small you think you make, you have to start your journey of long term wealth building.

If you start today, your old self will be thanking you a thousand fold because when you start receiving your Canadian government pensions at old age, you’ll realize just how small they are.

And this is the reason why most people who are over age 65 return to the workforce a couple of years after they retire.

They didn’t have enough wealth built to last them a lifetime.

On average, Canadians would live at least 20 more years after the age of 65.

Most retirees run out of money between 3 to 5 years after retirement and their only source of income after that is their Canadian Pension Plans and Old Age Security which are only meant to supplement our own retirement funds and were never meant to be our sole source of income at retirement.

Yet, up to now, most people would put all their hopes for retirement on government pensions alone.

The Best Way to Build Wealth In Canada

There are a number of ways that you can build wealth in Canada.

The simplest and by far the easiest for most people to follow is the Automatic Millionaire method which was popularized by David Bach in his best selling book of the same title.

As I mentioned, it’s simply a matter of keeping a portion of your income on a regular basis and investing it for long term compounded growth.

Regardless of how much you make or whatever it is that you do for a living, a mere 10% of your monthly income that automatically gets taken out of your account and deposited in a long term investment account can help you build an abundant future over-time.

Of course, building wealth isn’t limited to only keeping 10% of your income for retirement, you can put in 25% or even 50% of your income if you so choose but then again very few people would be able to sustain keeping a large chunk of their income toward a long term wealth building fund.

So starting small is the key!

It’s like anything in life; just start off with something that you’re comfortable with and grow your contributions over time as your income grows.

The second key is automation!

It’s quite easy to put it off if you have to actively transfer funds from your chequing account into a TFSA or an RRSP for example but if your contribution into your wealth-building funds is automated, it goes straight into these accounts on a monthly or bi-weekly basis. This way, it’s hands-free and you never forget about it!

Over-time your money will grow, without you lifting a finger to actively move funds on a perpetual basis.

Instead of simply stashing your wealth-building fund in savings account with a bank were there’s virtually no growth, take advantage of Tax-Free Savings Account and a Registered Retirement Plan (outside the bank) where your assets’ growth is either tax-free or tax-deferred.

Sheltering your investments on a tax-free or tax-deferral vehicle boosts your assets’ compounded growth as you are not taxed every time your money grows from inside of these accounts.

RRSP Calculator (Wealth Building Projection)

Say for example if you’re someone who’s 25 years old and who’s making a $250 bi-weekly contribution into an RRSP.

At an average rate of return of 5% without ever-increasing your contribution as you age, regardless of how much your income increases, you’ll be looking at $805,424.11 of wealth built within a tax-deferred retirement account.

rrsp calculator - projection

“Now, wait a minute? A 25-year-old can’t possibly afford to contribute $250.00 bi-weekly into a wealth-building account!” 

Can a 25 year old afford a $250 bi-weekly car payment?

Most of them probably would; it’s really about knowing what your priorities are. But of course, just start with whatever you’re comfortable with.

Say if you can only afford a $150 bi-weekly contribution into your long-term wealth-building account and you’re starting at 40 years old.

Here’s what you can expect:

rrsp calculator age 40 projection

Regardless, you would still have something saved up. The important thing is that you get started.

As per my favorite Chinese proverb, if you’ve missed planting a tree 20 years ago, you should start planting now because time will pass you by and if wealth building isn’t a priority, there wouldn’t be one at the end of the rainbow.

Yep, building wealth long term isn’t as exciting after all and it shouldn’t be but the earlier you get started the better off you are.

If you’re starting out in your wealth-building journey pretty much at a later stage in life (like everyone else), like the second example I’ve quoted above. A 40 year old, ideally should already be saving at least 25% of their income because they have a shorter time horizon to build wealth as compared to those who are in their 20s.

If you want to check how this could work for your specific situation, you can click here to access the RRSP Calculator

You can also run similar scenarios if you are contributing to a TFSA changing the investment type in the financial calculator.

Faster Way to Build Wealth in Canada

Boring right?

wealth accumulation winnipeg

Wealth building isn’t sexy but you’re going to feel sexy when you’re wealthy!

Building wealth takes time but it can be faster if you have more funds to feed the beast (your wealth accumulation funds.)

Building wealth, technically, is just a matter of investing in compounded growth over time.

If you feel that you’re living paycheck to paycheck and think there’s no way that you can start saving up to build wealth for retirement, there are two things you can do to free up budget to build wealth, and they are:

  1. Minimize your expenses
  2. Increase your cash flow

Minimize Your Expenses

Minimizing your expenses may require a change of lifestyle and not everyone is comfortable with doing this but it depends on what your priorities are.

If you want to build wealth for a better future, maybe bringing pack lunches to work to avoid from going out on lunches five days a week may be justifiable.

As human beings, we all have our comfort zones, tweaking our comfort zones to adjust to a more affordable lifestyle can mean a lot to our bottom line and future wealth because the more you put in into your wealth accumulation the better for you and most of the times, the first step is simply cutting down on your expenses.

You would be surprised to learn that most wealthy people are actually frugal with their money and most tend to live a simple lifestyle.

Increase Your Cash Flow

As most people feel that they’re living paycheck to paycheck; aside from minimizing expenses, it is also important to find ways on how one can have an increase in cash flow and this can be done in four ways:

  1. By asking for a raise
  2. By working at an additional job
  3. By looking for a higher-paying job, and
  4. By starting a side business.

Ask for a Raise

If you’ve been working for a job for a while and you know that you’ve been giving tremendous value and hard work to the organization that you work for, asking for a raise is the easiest step to increase your cash flow.

If on the other hand, you’ve been kinda slacking at your job, this may not be an easy conversation with a superior but then again, it’s worth a try. What you can do in this case is to commit to giving more value to the organization by working harder and finding ways on how you can help solve issues within the organization, then ask for a raise.

Add Another Job

If even with your current job, you feel that it’s still hard for you to set aside some funds to build wealth; adding another job on a part time or full-time basis may also be an option, though not the smartest move, it will add in to your cash flow.

Look for a Higher-Paying Job

If asking for a raise or getting an additional job doesn’t fit the bill, another option is to simply find yourself a higher paying job to increase your cash flow.

Start A Side Business

Amongst these four options, the most productive use of your time and the one that will give you the most output will be of course, to start your own business, even on a part-time basis.

There are a lot of advantages to starting a business; of course, aside from the fact that it may not be profitable right away but once it gains traction, it’s going to improve your cash flow in such a better way than when you work for an additional job.

You can combine this strategy with the other two of course, as you can always ask for a raise from your primary job or maybe look for a higher paying job even if you’re running a business on the side.

Having a business or being a self-employed professional has a lot of advantages in Canada which is beyond the topic of this article but it’s going to be far more advantageous when you’re planning to build wealth compared to simply working more jobs in order to increase your cash flow.

But then again, take this idea with a grain of salt as starting a business has its own share of risks and if you’re not comfortable with being uncomfortable or making sacrifices, this may not be for you.

Book An Appointment

If you’re looking to implement well-planned risk management and wealth accumulation strategy, please don’t hesitate to book your free initial consultation with us and see how our financial services can benefit you and your loved ones.

Resources mentioned that helps you build wealth in Canada:

  1. Registered Education Savings Plan [RESP]
  2. Tax-Free Savings Account [TFSA]
  3. Registered Retirement Savings Plan [RRSP]
  4. Non-registered Investment Accounts
  5. Investment Properties
  6. Business or Self-Employent