Brokerage Account - Millionaire on the Prairie

10 Ways to Increase Your Wealth in 2024

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.

I Love My Cash Machine!

Happy New Year! I hope that you 2024 is off to a great start for you.

I’m happy to report that my cash machine hit a new milestone in 2023. After crunching all my numbers and updating all of my spreadsheets, I was quite pleased. For the first time ever, my cash machine generated more dividends in my non-registered account than the amount of contributions that were made. Woohoo! I’ve waited a very long time for this to be the case, and I can tell you that this achievement is sweet.

When I first started investing in dividends, I was doing it just because my parents had been investors and they’d bought some bank shares for me. Naive as I was, I simply loved the idea of dividends. My thought process in choosing my investment strategy had been… shall we say… unsophisticated. Passive income? Money sent to me just because I owned some shares? Even more money sent to me through the power of dividend re-investment plans? Where do I sign up?

I was hooked on dividends from the word go! At first, I barely earned $50 per year. The first time I earned $1K in a year, I smiled to myself. It dawned on me that I might one day earn $5,000 in dividends in one year. And the first time I earned five figures in dividends, well… let’s just say that was a very good day. Without a shadow of a doubt, I know that if I continue to invest wisely then I will one day hit six-figures per year in dividends. Yay, me!

So even though it wasn’t the best way to invest, I continued to buy more and more dividend-producing securities. (Looking back, I should have contributed to equity-based securities. I would’ve benefitted from the bull-run and likely be several years closer to retirement by now. Oh, well – coulda, woulda, shoulda!)

If I absolutely had to, I could live on the dividends produced by my portfolio. It wouldn’t be a lavish existence by any means. I’d have to cut out a few things – like travel and theatre – and I’d definitely have to watch my nickels & dimes more carefully. But, I’d be able to do it.

It’s amazing to me that I’m in this position. I have made so many investing mistakes. Like I alluded to earlier, I invested in dividend-paying securities instead of equity-based securities. In hindsight, the biggest money mistake I made with my portfolio was choosing passive income over growth. Given that I started investing at age 21, I see now that I’ve made a huge mistake with my portfolio! I wasn’t terribly knowledgeable about investing at that tender age, and my parents weren’t experts in the area either.

They taught me to stay out of debt, to live below my means, and to invest in banks and energy stocks. That’s not bad advice, and I really didn’t go too, too wrong. However, they didn’t teach me about the differences between growth investments vs. income-generating ones. They didn’t teach me most of what I now know about investing. To be clear, I’m not blaming them because you can’t teach what you don’t know. Had they known, they would have stuffed it into my head just like every other life lesson they imparted to me.

And the internet was nascent when I was young. Today, there are blogs and websites and many, many, many online platforms for self-directed investors. The knowledge is literally at everyone’s fingertips so long as they have a device and an internet connection. Anyone with disposable income has the ability to create their own cash machine and watch it grow over time.

Had I been smarter sooner, I would’ve tweaked my investment plan sooner. My cash machine would’ve been kicked into high gear even sooner. Instead, I believed that a person had to stick to one investment strategy forever. This belief was another huge mistake that I made with my investment portfolio. Still somewhat begrudgingly, I have come to realize that tweaking things isn’t always terrible.

For example, I tweaked my investment plan back in October of 2020. As you’ll recall, that’s when the stock market started to recover from the devastating impact of the pandemic. I decided to start buying units in VXC. From that point one, I decided that all contributions to my non-registered portfolio and my RRSP would go towards buying VXC. That was a very smart decision on my part. I can happily report that my returns since 2020 in those two accounts reflect that my tweaking was the right move.

This year, I’ve decided to tweak my TFSA account. (Why didn’t I do this back in 2020? Honestly, my failure to course correct in my TFSA can be chalked up to ignorance about the tax implications of owning securities where I’d pay a withholding tax.)

This year, my TFSA contribution went towards buying units in VGRO. I’m getting a bit more bond exposure in my overall portfolio while also adding some needed equity exposure. Since I plan to hang onto my TFSA for a very, very, very long time, this is the perfect place to add a growth-oriented investment product. There will come a day when I might want to start drawing out tax-free money from this account, so it’s best to tweak my TFSA holdings today. If I’m burdened with too much money, then it’s a cross I’ll have to bear.

So what are my future plans for my cash machine? Well, I’m hoping that it will soon kick off more dividends than the amount I contribute to both my brokerage account and to my TFSA. There’s a chance that might happen by 2026, but only time will tell. By the time I retire, I hope that it generates enough for my basic needs and for my nice-to-have’s. In short, I want my cash machine to generate six-figures of income. Wouldn’t that be nice?

Doing First Things First

Go ahead, Gentle Reader – you’re on the air.

Blue Lobster, I’ve got a question for you… I’ve saved up some money. Where do I invest it for long-term future growth?

Great question! And one that I’d love to answer… but first things first. I have to state the following:

I am not a financial advisor nor am I in any way certified or qualified to give tax advice. The following post is based solely on my life’s experiences. I can tell you what I did, but I’ve made mistakes over the years. My choices were based on my particular circumstances which means that my choices might not be right for you. If you want professional advice, then I’m going to strongly recommend that you find a professional person to give it to you. I’m not a professional financial advisor so you rely on my opinion at your own risk.

Now, with that out of the way, let’s get back to your question. I like to call the following my Order of Investing Money.

First Things First

In my opinion, the best place to first put your money is into a Tax Free Savings Account (TFSA). The TFSA was created in 2009. If you’ve never contributed any money to your TFSA, then your cumulative contribution room as of January 1, 2020 is $69,500.

The TFSA does not generate a tax deduction. The money that goes into the TFSA is after-tax money. Whether you’re in the highest tax bracket or the lowest tax bracket, your money goes into the TFSA after you’ve paid taxes on it. If you invest it in equity products and you earn outsized returns, then all of the initial contribution and the growth generated can be withdrawn without any kind of tax penalty.

Allow me to be repetitive so that the following point is not lost on anyone reading this post. All money that goes into a TFSA grows tax-free. When you take it out of the TFSA, the money is not taxed by the government.

Whatever you take out of your TFSA can be contributed back into your TFSA in the following calendar year. This rule is applicable even if your withdrawn amount is higher than the amount that you’ve contributed over the years. In other words, you can withdraw both your initial contributions and the growth that has accrued, then you can contribute those amounts back to your TFSA the following calendar year.

So if you’ve invested the maximum to your TFSA, i.e. $65,000, and it’s grown to $110,000, then you can withdraw the full $110,000 whenever you want. You simply can’t put any of that money back into your TFSA until January 1, 2021.

Should I put my money anywhere else?

The next best place to save your money, in my humble opinion, is in your Registered Retirement Savings Plan (RRSP). However, there are a few major differences between the RRSP and the TFSA that you need to know about.

Unlike the TFSA, money inside your RRSP will grow on a tax-deferred basis for as long as it stays inside the RRSP. The taxes that are owed on the money that accumulates in your RRPS are deferred. You don’t pay those taxes now – instead, you will pay those taxes later. To be precise, you will pay taxes on that money when you withdraw it from your RRSP.

Contributions to your RRSP are tax-deductible. If you put money into your RRSP, then the Canada Revenue Agency will refund you the taxes that you paid on that money when you earned it. This is great!

If you’re in a high tax bracket when you contribute to your RRSP and in a lower tax bracket when you withdraw from your RRSP, then you’ll save money on taxes when you withdraw it.

If you’re in a low tax bracket at contribution and then a higher tax bracket at withdrawal, then you’ll pay more in taxes. This sounds bad but keep in mind that you’ll have had years of tax-deferred growth within your RRSP if you’ve seen good returns on your investments.

Paying taxes on money is far, far better than having nothing set aside for retirement.

And if I’ve maxed out my TFSA and my RRSP?

Gentle Reader, you’ve done me proud! If you’re in the very fortunate position of having maxed out both your TFSA and your RRSP, then I salute you. Reach over and give yourself a pat on the bat. You’ve done well!

Your next step is to open a brokerage account, aka: an investment account, and start investing your money. You’ll be contributing after tax dollars to this account. Your growth will be taxed as you earn it, but you’ll be investing your money instead of squandering it on frivolities that don’t add to your life.

Throughout this entire order of investment priorities, you should be taking care of your present and future financial needs by practicing the 4-step process for financing your dream life: save-invest-learn-repeat.

You’re going to have to take some time to learn about TFSAs, RRSPs, brokerage accounts, and the various investment options available to you.

Do not let analysis-paralysis stop you from starting. Similarly, it mustn’t prevent you from making investment decisions. You won’t make perfect decisions, but console yourself with the truth that no one does. This is why learning is such an integral part of the 4-step process.

Maxing out my accounts is impossible!

Stop fretting! No one said you have to max out all your accounts.

If you can, then great.

If you can’t max out all your accounts in one shot, then contribute as much as your budget will allow and get on with the rest of your life. The only “bad” contribution amount is $0. Anything over and above $0 is progress. Find ways to cut expenses or find ways to increase your income. The option is yours, but so is your obligation to yourself to contribute as much as you can towards the Care & Feeding of Future You.

As you learn more, you’ll earn more. And when you earn more, you’ll contribute more. It’s that simple.

Please do keep in mind that simple isn’t the same as easy. I’ve yet to find that “easy” way to earn money to contribute towards my investments. Every dollar has been hard-earned.

My advice is to start with first things first. Begin by fully funding your TFSA. Once you’ve done that, max out your RRSP. When that task is done, set up an automatic transfer to fund your brokerage account. And if you decide to not follow this Order of Investing Money, then I beseech you to continue learning about money so that you’re confidently investing for your future in a whatever manner that best suits you.

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Weekly Tip: Open an online savings account. Get one that pays higher interest than what the brick-and-mortar banks are offering. Consider EQ Bank. (I’m not being paid for mentioning this bank.) This savings account should be separate from your daily chequeing account. Set up an automatic transfer of money from your paycheque to your online savings account. This transfer should fund – in order of priorities – your emergency fund, annual bills, short-term goals, and luxuries for yourself.