Traditionally, I was not one to go on vacations or look for experiences. My idea of a good time was staying at home, playing some video games, and hanging out with my friends. Sometimes all at the same time. Only in the last few years, I started going on vacations to see the sights of the world, and create experiences that will last in my memory for a lifetime. I still enjoy my old ways. I just enjoy a larger variety of activities now.
While I don’t regret not “experiencing life” earlier, I will admit that I am going on many outings lately, as if to make up for lost time. Everyone deserves to make incredible memories, and while not all vacations cost a lot of money, some do. If you want to go on a big, expensive vacation, go ahead. Even if it goes beyond what your normal budget expectation may be, go ahead.
Spending a lot of money is OK as long as you are investing money. Notice the use of words here: I did not say “saving” money. The word “invest” was intentionally used. Saving money should be a given. That is for your short-term goals, an emergency fund, or a safety net in case something happens. However, saving money is not the same as investing your money.
Saving, but not investing, is not good enough.
Money that is saved is often very liquid and financial institutions, therefore, don’t offer favorable rates. Even a “high-interest” bank account or GIC only hovers around the 1 to 2% growth mark. This doesn’t even cover inflation most years. Think of this: For many people, saving $1000 a month, or $12,000 a year is pretty impressive. But if this money doesn’t really grow, you could save for a decade, and you still wont have enough for a down payment on a home in the GTA. Generally, everyone should be investing money that will 1- beat inflation and 2- achieve the goal you have set for yourself. How much should you invest? The answer is, as always: “it depends.”
Factors to consider:
–How much can you afford to invest? You don’t want to struggle to save or invest. There is little point in making big commitments that you cannot hold to it and then have to pull out all your investments when you hit a financial snag.
–What is your investment goal? Saving up for a down payment for a mortgage is a lot different than saving for your child’s education costs, which is also very different from your retirement. Each goal will have different amounts invested, and the time frame will vary.
–Tax efficiency: don’t dump all your investments into your locked-away, heavily taxable RRSPs as you’ve been taught all these years by the big banks. In very broad terms, any money that you grow in your RRSP can be taxed up to 52%, depending on the circumstances when you cash out. So, all that growth in there is not really yours. There are alternative methods that are far more tax-efficient, so you can keep more of the money you have grown.
Needless to say, investing your money is important in today’s world of skyrocketing real-estate prices, and very few companies providing their employees with a pension.
We can book a meeting to discuss tax-efficient ways to grow your money so you can keep experiencing the Now while still growing your wealth for Tomorrow. Have an amazing day and talk to you soon!
