By Lesley Scorgie
Author of Rich By Thirty: A Young Adult’s Guide to
Financial Success
Globeinvestor Magazine Online, July 10, 2008
My Aunt Marian may not appear rich – she flies economy class and drives an eight-year-old SUV. But she made her millions through determination and careful planning, unconcerned with the trappings most associate with wealth.
I visited her recently in Toronto for a financial tuneup, feeling battered by the market’s downturn.
For more than three years, Aunt Marian has been my money mentor, showing me the habits of a self-made millionaire. She made her living as a designer, and sold her business a few years ago. She has helped me greatly improve my net worth– I bought a house, maximized my RRSPs annually, eliminated debts and donated money to charities. Though tough at times, the journey toward financial security has been rewarding and worth the effort.
Here are Aunt Marian’s six steps to becoming a millionaire.
1. Get a game plan.
My aunt’s first principle of building wealth is to plan for financial security. Most millionaires didn’t just win a lottery. They developed a financial plan, with a timeline in mind, to steadily increase their net worth – a combination of debt reduction and asset building.
According to experts like author David Bach, setting up automatic RRSP contributions and debt repayments is the simplest way to stick to your plan – even when life throws a curve ball. The theory behind automation is that human spending habits and temptations won’t get in the way of making regular contributions.
2. Help from above.
Hire an investment adviser. Their job is to help you achieve financial and lifestyle goals. Most valuable of all, an adviser will make sure you have the right mix of stocks, bonds and cash. Perhaps most importantly, they can help you make you have enough to retire on.
3. Save.
My aunt informed me of a third principle–spend wisely. Rich people get that way by spending less than they make. The average Canadian household does just the opposite. According to Statistics Canada in 2005 , the average Canadian household owed $9,000 on their line of credit, $2,400 on credit cards, $9,000 in student debt, $11,000 in vehicle loans, and $6,000 in other debts. Saving in advance for the things we want in the short term, like vacations and cars, is the best way to avoid overspending and going into debt. Some experts suggest tucking away 5 to 10 per cent of your income for these shorter term expenditures.
4. Set priorities.
In debt and struggling through monthly payments, where does a person begin?
There are conflicting priorities to abolish debt, save money, invest and the list goes on. Unfortunately, focusing on just one of these won’t build wealth. Balancing debt reduction and asset growth will. Set up payment plans through online or automatic banking to eliminate debt. Tackle high-interest debt first. Whatever plan you arrange, leave yourself room to build assets and live your life. And keep in mind real millionaires only borrow to increase net worth, not to buy Gucci bags.
5. Invest.
Aunt Marian says rich people follow a fifth principle – invest 10 to 15 per cent of gross income. And the sooner the better.
6. Give back.
The final millionaire principle? Give to worthy causes. Not only will you receive a tax credit, there are a variety of other benefits; recognition, altruism, expanded networks (people or businesses you’re involved with), increases in sales, promotions, job offers, publicity, etc. People pay attention when you give of time, talent and treasure because it shows leadership.
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Aunt Marian and other millionaires have achieved financial freedom and inspire us to take responsibility for our futures. Let’s face it; no one’s going to do it for us. But you have a choice – live beyond your means, or become wealthy through frugal living and investing in your future. As a young person trying to achieve financial freedom early, by age 30, I choose the latter.
Special to The Globe and Mail
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