Someone is sitting in the shade today because someone planted a tree a long time ago. - Warren Buffett
Saving and letting your money grow gradually over time sure sounds kind of boring, especially when you hear about how much money professional athletes, famous musicians, and high level executives earn. However, by following some of these 'boring' strategies, your wealth will grow and your money will start to work for you.
Have a positive mindset
The first thing you can do on your wealth building journey is change your mindset from 'I'll never be wealthy,' to something more optimistic like 'with the right behaviour, I can grow my net-worth to a million dollars.'
Use whatever strategy works for you, but think positively! In books like The Millionare Nextdoor, there are real life examples of very wealthy individuals who earned moderate salaries, and simply saved and invested over decades. If any of these people didn't believe that becoming wealthy was possible, they wouldn't have even tried.
Live below your means
Living below your means doesn't mean that you have to live a spartan existence in a 100 square foot apartment and only eat instant ramen. It simply means that your expenses shouldn't regularly outweigh your income.
In general, spending too much on new cars, expensive trips, big houses and fancy meals, is a sure-fire way to live above your means. Although you should be thoughtful about where your money goes, saving for tomorrow doesn't mean that you will be unhappy today. Often people who live below their means are happier and less stressed about money.
If you do find that you are able to earn more through raises or side-hustles, try not to increase your spending to match your increased income.
Invest early and as often as possible
When you live below your means and are able to save money, it's important that you put it to work; cash will slowly lose its value over time due to inflation. For most people, keeping this part simple and investing in the broader market with a well diversified ETF portfolio, or robo-advisor service, makes the most sense.
The power of compound interest can be hard to appreciate, especially in the early years of saving. However, by reinvesting your returns, your wealth will start to accumulate at an impressive rate.
Be smart about taxes
Taxes play an important role in your ability to become wealthy. Some tax strategies, like spousal income splitting, might require help from a professional or a decent amount of individual research, however some very simple solutions can save you thousands of dollars.
One strategy that many Canadians miss out on is using the most tax advantageous investing accounts. By holding as much of your investments as possible in TFSA and RRSP accounts, your investment returns will not be taxed. This means that your investments compound and grow at a much more favorable rate.
Protect your wealth
You want to ensure that your wealth and more importantly, your earning potential, is properly protected against an unforeseen event.
When you are evaluating insurance options, do your research on what products make sense for your situation. Some Canadians are over-insured and have been sold unnecessary products. You don't want your insurance premium payments to significantly reduce your ability to save.
When buying insurance, take emotion out of the equation and rationally think about the financial consequences for your family if you were to pass away or become disabled for a period of time. Insurance is actually more relevant when you are starting to accumulate wealth, since you have more earning years ahead of you and you haven't built up a large financial cushion. As your net worth grows, you might not need as much coverage.
Conclusion: It's simple, not always easy
Even though the principles of building wealth are simple, actually doing it isn't necessarily easy. To grow your wealth you have to go against the crowd and be patient - it's a marathon, not a sprint! It's human nature to want to be perceived as successful; just remember that a lot of those who appear to be living the high life have often accumulated a lot of debt, and usually a lot of stress.
Saving, investing, minimizing taxes, and protecting your wealth could mean that in future years you will be worth hundreds of thousands more than if you ignore those strategies. Think about how many more years you would have to work to earn that amount of cash.
You can do your own planning, or hire a financial planner to build a customized strategy. Just make sure that if you are receiving advice from an expert, that they have your best interests at heart. No matter what path you decide, invest in yourself and spend some time increasing your understanding of personal finance basics - it will have a large payoff.