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money-rolls

Investing 101

One of the smartest things you can do in your life is make the decision to invest your money. The sooner the better! The richest and smartest members of the Golden Third know how to use their money to make more money. You should be making a retirement plan from the first time you have a job.

A simple savings account/GIC/Term Deposit  is not good enough. The reason for this is because most of these savings instruments offer a return on investment which is lower than the inflation rate. Inflation is the increase of prices on goods and services over a certain period of time. Essentially, every year the buying power of your money  is decreasing. The average inflation rate for 2014 in Canada was 1.95%.(Historical Inflation Rates).Right of the bat, your investment has to earn you more than 2% , just to break even. A simple savings account earns you .125%. A credit card usually charges interest at 19%. So the first goal is to pay off debts and then save.

Compounding Interest

This is a great video that shows how compounding interest works.

Simply “putting aside” money is not good enough. Assume you have $20,000 to invest and you put aside $415 every month for 40 years and DO NOT put it in a compounding instrument, you end up with only $199,200( # of months in year * # of years * $415) …… 12*40*415=  $199,200.

Now lets say you put the same $20,000 into a compounding instrument at 6%. Every month you deposit $415, which is about $5,000 a year. If you continuously do this for 40 years, you will have $1,000,000. If you start at 25 years old, 40 years later when you are ready for retirement, you will have $1,000,000 for your retirement spending! Try it yourself. Compunding interest Calc. You thought investing was risky? Not investing is much more risky!

So what are some investments that will earn you more than 2%. Mutual Funds are great investments, but they are a lot more volatile than your average investment. Dynamic Power American Growth Fund had an amazing return of 56% in 2014. Mutual Funds may have amazing years and horrible years as well, but the average return of a mutual fund over a long period of time is about 8 – 10%.

Start Thinking Differently

Broke people do this: They get a paycheck which is their revenue. They take that revenue and buy random stuff, the random stuff are their expenses. They are the consumers in the world.

Middle Class does this: They get paid and they buy liabilities, but they think these liabilities are assets. These liabilities are cars, houses etc. These liabilities are usually paid back on some sort of payment plan. These become their expenses.

Golden Thirds: People that are rich are aware of how their money can make them more money. When they earn their money, they buy assets. These assets in return give them more money. It becomes a cycle, this is when you can afford to make purchases.

This video makes it easy to understand revenue/expenses/liabilities. Learn how the rich get rich. They think differently than the average person. Open a business and benefit from the tax benefits. Tax is one of the biggest expenses in your life.

Live the The Golden Third Life!