This blog post was originally published on the MoneyGeek.ca blog by Jin Choi. The website no longer exists, but Jin has graciously allowed us to re-publish his research for the benefit of future investors forever.
Who wants to be a millionaire? You don't have to beat a trivia game on TV to become one. You just have to save yourself a million dollars.
My wife recently found an article that showed us 50 different ways to save a thousand dollars.I found this article very helpful, but this got me thinking:
Can we save even more?
So, please allow me to present to you this extremely valuable collection of advice that will help you get rich:
5 ways to save a million dollars.
1. Pass on the yacht
There have been many status symbols throughout history. It all started with bear claws, then we started to fawn over Rolexes and sports cars. But in these modern times, nothing says you made it like a million dollar yacht.
Big, shiny, and rather unnecessary, the mere mention of it will instantly turn your colleagues' face with envy. Beer will never taste better than when lying on the deck of your own sea castle, watching the peasants swim by.
However, there's a catch. Not only does a yacht cost a million of your hard earned bling, it's also capable of delivering a sucker punch to your bank account whenever its motors have a mood swing.
Therefore, if you find yourself worrying about paying off your bills, think to yourself - "do I really need to buy that yacht?". If the answer is "no", skip the yacht and save yourself a fortune.
2. Live on the streets
Let's face it. A house is a real drag on your finances.
In fact, housing represents one of the biggest expenses of our lives. Imagine paying $1,000 a month in rent for 60 years. That's $720,000, and much more if you think you can earn big bucks investing in the financial markets with that money instead.
Won't buying a house be cheaper? Forget it. In Vancouver for instance, a million dollars will only get you a rusty old shack with boarded up windows. Throwing cash at clueless chimps will probably earn you more happiness over the long run.
But the truth is, you don't need to waste so much cash on some walls and a roof.
Today, millions of North Americans live without housing at all - yet they survive year after year. If they can do it, you can too.
3. Move to Qatar
Benjamin Franklin once said that nothing is certain but death and taxes. Benjamin Franklin has never heard of Qatar.
Today, a few countries around the world have 0% income tax rates. That's right - zero - and Qatar is one of them. Sitting on top of billions of dinosaur bones, Qatar pays for its humble fleet of Porsche police cars by selling barrels of its liquid gold.
Let's say you would have earned $75,000 a year in Canada over your life, and paid roughly $20,000 a year in income tax. If you would have worked for 40 years with equivalent pay in Qatar, your tax savings would amount to $800,000. Investing that savings in the financial markets would tip you over the million dollar mark.
4. Become a CEO of a big company
You've probably heard of this troubling statistic: the rich are getting richer, and the poor are getting poorer. The problem seems to get worse despite the popular outcries against wealth inequality.
But one man's problem is another man's opportunity. So I say to you: if you can't beat'em, join'em instead.
According to the CBC, the 100 most well compensated CEOs in Canada earned $7.7 million in 2011. Getting such a job will definitely make you more than a million dollars richer, in less than a year!
So if you want to become rich, just get a job as a CEO. Simples.
5. Invest Outside Your RRSP Account
Many people think that holding investments inside their RRSPs will always save them money, compared with using a fully taxable margin account.
They're wrong.
When you withdraw your money from your RRSP, you pay a full income tax rate on your withdrawals. In contrast, you pay half the income tax rate on capital gains accrued inside your margin account.
Therefore, let's say that you have $20,000 in your RRSP account. Let's say you withdraw the money today, so you're left with $14,000.
Let's say your investments compound by 50% per year every year for 30 years. Then, you'll have about $2.7 billion at the end of 30 years. When you sell, you may pay something like 25% on your capital gains, which means you'll be left with $2 billion.
On the other hand, if you leave $20,000 in your RRSP and compound this by 50% per year for 30 years, you'll have $3.8 billion in your account. But, since you'll be in the top tax bracket when you withdraw the money, you'll be left with only $1.9 billion after you pay the tax man.
The difference between the two strategies? $100 million.
Conclusions
I know what you're thinking. It's crazy - how come you've never thought of this before? With these 5 highly actionable items, becoming a millionaire is totally within your reach.
Furthermore, this list proves that if anyone is struggling financially today, it's really all their fault. So if you know someone who's struggling, send them this article, and tell them:Quit complaining.
This blog post was originally published on the MoneyGeek.ca blog by Jin Choi. The website no longer exists, but Jin has graciously allowed us to re-publish his research for the benefit of future investors forever.
