I’ve been learning about wealth-building and personal finance for awhile now. Allow me to save you some time by sharing the methods that helped me to reach my own financial goals. If you want to increase your wealth, then implement as many of the following strategies as you can. Don’t be discouraged if you can’t do them all at once. Much like becoming proficient in any area of life, it takes time to get good with money.
1. Live Below Your Means
This maxim is the bedrock of succeeding with money and increasing your wealth. Your “means” is your income, so never spend more money than you bring in. Spending more than you earn translates into debt payments to creditors. It also put you in the position of never having disposable income for investing and building an emergency fund.
Say the word “No” to yourself and others until you’re able to live below your means.
2. Pay Yourself First
Whenever money hits your bank account, take 10% off the top and invest it. In other words, send the first 10% that amount to your TFSA, RRSP, or investment account. The sooner the money is invested, the sooner it’s working 24/7/365 to replicate itself for your benefit. This 10% is the money that must be properly allocated to Future You before it is spent on the present wants and luxuries of Today You. Believe me when I say that 10% is the absolute bare minimum that you must invest it for your future.
After you’ve sent the first 10% to your investment account, spend the remaining 90% of your money however you want without incurring debt.
Ideally, I’d like to see everyone invest 20% or more but this isn’t always feasible. And if you can’t start with 10%, then start where you are and work your way up to 20% or more.
Strive to increase your savings percentage by increments of 1% as often and as quickly as you can.
3. Build Up Your Emergency Fund
To start, I want you to get $1,000 in your emergency fund. This isn’t enough for a lot of emergencies but it’s better than nothing.
In the perfect world, you’d have 6 months of income in the bank. That takes a very long time to accumulate because it’s not a small amount of money. Set up an automatic transfer so that a portion of your paycheque goes to your emergency fund every time you’re paid. Once you have a 6-month emergency fund, then your emergency fund contribution can be re-directed to paying off debt and/or investing for the care and feeding of Future You.
If you have to use your emergency fund, then re-filling it has to become a priority again.
4. Pay Extra On Your Debt
Debt is a wealth-killer. If you’re committed to handing over great swaths of your paycheque to your creditors, then you simply cannot use those funds for investing.
I don’t care if you use the snowball method or the avalanche method to pay down your debts. Just get rid of them! Here are some methods to get find the money to make extra payments over and above your minimum amounts due:
- Work another job and devote that paycheque to your debt.
- Cancel some of your subscription services and re-direct that money to your debts.
- Sell things that you no longer need, use, or want and put all that money towards your debts.
- Downgrade your car for awhile to get out from under your car payments, and use your those former payments to pay down your debt.
Once you’re out of debt, stay out. If you want to buy something, save up the money first then buy the item outright.
5. Fund Your TFSA
The Tax Free Savings Account is a magnificent tool for building your wealth. Do not be intimidated by the maximum annual contribution limit. For 2024, that limit is $7,000. Contribute what you can!
Invest your TFSA contribution for growth. Do not use your TFSA as an emergency fund or a savings account. The name is misleading. Think of your TFSA as a way to build a tax-free river of cash that will pay for your living expenses once it grows large enough. That’s right. The money grows tax-free. If you invest it in growth instruments and let your investment compound for a long time, the dividends and capital gains earned inside your TFSA can be withdrawn tax-free to fund your living expenses.
6. Fund Your RRSP
Much like the TFSA, money inside your Registered Retirement Savings Plan will grow tax-free. The main difference is that withdrawals from your RRSP will be taxed. As such, investments in your RRSP are properly characterized as tax-deferred.
Again, stuff your RRSP to the best of your ability. Create an account at the Canada Revenue Agency so you can see exactly how much you can contribute to your RRSP. As with building your emergency fund and filling your TFSA, it might take you a long time to max out your RRSP contributions. Don’t let that stop you from starting.
7. Contribute to Your Brokerage Account
Once you’ve maxed out the contributions to your TFSA and your RRSP, they will continue to take priority each year when you have to consider where to invest your money.
However, there will come a point where you will still have money to invest after you’ve contributed to those registered accounts. At this point, you should open a brokerage account and continue to invest. The dividends and capital gains earned in your brokerage account will be taxed, but at rates much lower than the income you earn from your employer.
8. Throw Money Into a Slush Fund
A slush fund is simply there to be a buffer. If you get a parking ticket, then use the slush funds to pay for it. Let’s say you need a last-minute hostess gift, then that’s where the money comes from.
I’ve had my slush fund for a few months, and it’s come in handy. I pay some of subscriptions annually, and the money has come from my slush fund. Every money, I transfer $25 to this account. Once it hits $500, then I’ll stop doing the transfer since I’m not looking to build another emergency fund. My slush fund is meant to fluctuate up and down as unexpected yet-not-emergency-fund-worthy expenses crop up during the month.
9. Pay Off Credit Cards in Full Every Month
Use your credit cards – just pay them off in full every month. If you only pay the minimum balance owing, then your issuer will charge you interest. That interest will compound every single month until the debt is paid.
And if you can’t pay off your credit cards in full every month, then stop using them and pay for your purchases with cash. When the cash runs out, you’ll know to stop spending until your next paycheque comes in. The real beauty of cash is that it forces you to prioritize your purchases. Only you know what’s most important to you today… and which purchases can wait until later.
10. Invest From Every Paycheque Until You Retire
This is key. You need to pay yourself first consistently until you stop earning money. Every paycheque is an opportunity for your to improve Future You’s financial comfort. Don’t squander that opportunity on purchases that you won’t remember in a month. Scared that you’ll make a mistake and choose the “wrong” investment? Feel the fear and do it anyway. The reality is that you learn more from your mistakes that your successes.
Every time you’re paid, take atleast 10% – or whatever amount you can start with – and invest it for your future. (If you’re still building your emergency fund, then split that 10% in half and send 5% to your emergency fund. The other 5% will be invested as follows – TFSA first, then RRSP, then brokerage account. If you have debt, then split that 10% three ways and send 3% to your debts as an extra payment over and above your minimum payments, 3% to your emergency fund, and the remaining 4% to Future You.)
The less you spend on things that don’t bring you joy, the more money you will have for Future You. Track your spending for a period of time, then go back and assess how you felt after each purchase. Identify those expenditures that didn’t make your life better, and then resolve not to make them again in the future. Zip-zam-zoom! There’s a little bit more money that can be invested.
So there you have it – my list of 10 ways that you can increase your wealth in 2024. There are no guarantees in life, but these 10 methods will get you closer to the financial comfort that we all desire to have in our dotage. You start where you are and you make progress each day. Trust me when I say that other people have figured out how to do this. You can figure it out too.