The Earning Years

Hopefully your career building has paid off and you are now earning a comfortable wage or salary. You may have a house and you are starting to feel that you have your financial head above water. You’ve read our earlier guides and following our advice around your primary investment goals:

1. Maximize RRSP contributions

2. Invest in an RESP if you have kids up to $2,500/year.

3. Put money in a TFSA to save for a home or other purchases.

4. Consider owning your own home

Now that you are in your earning years, you might be fortunate and/or thrifty enough to have additional money to invest. We can’t help you with the fortunate part but we certainly have something to say about the thrifty part. The “Millionaire Next Door” became a hit as it captured in a very compelling way the advice that has been given for years for saving money and building a next egg – live below your means. The Millionaire Next Door reveals the fact that many millionaires are hiding in plain site and they got their million by refusing to increase the cost of the their lifestyle as their incomes increased. If you are able to follow that example, you will experience a less stressful financial life and maybe even become another “millionaire next door”. I’m not going to try and summarize a complete book or the advice of many financial planners but the essence of the strategy is to let your income increase as you progress in your career without letting your spending level increase, or at least having your spending level increase slower than your income increases.

Sounds easy but it’s hard to do. Who doesn’t want to get that new car upon promotion? Who doesn’t want to move to that nice house with the big yard and pool when the kids are growing? Why shouldn’t we take a vacation to Greece this year? For some people, they manage to avoid all of this, living like they did in the 20’s all their life and proudly “retiring” in their 40’s. These people are generally single or don’t have children. People with children can manage the same feat, often retiring in their 50’s.

But for the vast majority of people, living in a small apartment, driving an old car and never going out to eat is not an appealing way of living and we don’t disagree. So, the compromise, that will work for most people, is to increase spending slower than income increases, allowing you to save more and more every month/year. And, if you’ve already invested, you’ll be getting some returns on those investments, compounding your wealth.

So, let’s assume you’ve done all the basic investment strategies described above and you still have extra money, what should you do now? It’s great to be in this situation because now you’ve taken care of your retirement through your RRSP, you’ve taken care of the kids through the RESP, you are maximizing contributions to your TFSA and you have some security in your life and a great investment because you own your home. The next investment you are going to make is all about you – making your retirement that much better, creating a legacy for your children, or just accumulating wealth so you can be free to make decisions about your job or life without having to worry so much about money. Many people get into their 50’s and would love to get the chance to start a second career.  For those who haven’t saved, they find it hard to make the switch, which typically comes with a pay cut. If you’ve saved, you have flexibility.

In terms of what to do with your money, your options are varied and depend on your level of interest/sophistication in investing, your investment horizon, the amount you have to invest and your risk tolerance. The rest of this site provides details on the different financial vehicles available to you, the types of investments you can put in these vehicles and things to consider when building your strategy. Or you can get help from a professional by clicking "Get Help".