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Werner C. Duever

Financial Security Advisor
Investment Representative
Freedom 55 Financial

Do this first and help build your wealth

You work hard for your money and what do you have to show for it? Why not put some money away for the day you would like to slow down or not have to work so hard. One of the best saving philosophies that I could share with you is called “pay yourself first”. Why not reward yourself for working so hard by building your own nest egg? Did you ever wish you could escape the 9 to 5 and the daily grind? Well, there is a way out and it is easier than you think.

The key to financial security: “pay yourself first”

Pay yourself first

The “pay yourself first” principle is simple. You automatically put a portion of the money you earn in a good mutual or segregated fund within a tax free savings account (TFSA) or a registered retirement savings account (RRSP). If you are young I would suggest one hour of each day’s earnings. If you are older and you have not accumulated much savings, you may have to put away two hour’s worth of your daily earnings. Then spend the rest on whatever you like. Save more if you can or spend the rest on what you like! Make sure you invest within your risk tolerance. Risk tolerance (e.g. conservative, balanced or aggressive) depends on a number of factors such as your age, appetite for risk and how long you anticipate using the money.

Would you like to be a millionaire?

Well, if so here is how you could get there. I tell a lot of my clients that about $250,000 in assets may generate a $10,000 per year income stream at any age as long as it is managed well. Then one million dollars may generate $40,000 per year for life if it is well managed. The more money you accumulate, the more flexibility you will have and more financially independent you will be. Most people require about 60-70% of their working income in retirement, depending on your lifestyle and how active you are.

Let’s say you earn $90,000 per year. If you put one hour of your pay away into an RRSP investment account before tax which could earn on the average 6% per year you could accumulate $427,000 in 20 years. If you increase your contributions by 2% each year and reinvested the tax refund* this could grow to close to $700,000!
Now, what if you could put two hours of your daily income away each year and your spouse did the same and you increased your contributions by 2% each year and reinvested your tax refund (assuming you both earn $90,000 per year). Then you could both accumulate a whopping $2,800,000. Congratulations you are now a multi-millionaire! Have this automatically withdrawn from your pay and you won’t miss it. It’s that easy.

Freedom comes more quickly than you think!

After you have accumulated enough money, your life options change and depending how old or young you are, you can start to do the things you always dreamed of – like golfing, traveling, volunteering at a charity or working part-time. Remember $250,000 in assets could create $10,000 annual income for life. How much would you need to stop working?  Freedom can come more quickly than you think. With enough money, you can modify your life to take more time off to travel or spend time with important people in your life. Having wealth gives you options and freedom – and you can finally say you have something to show for all your many years of hard work!

To balance wealth with security make sure you have all the necessary insurance in place before you need it so you don’t have to dig into the nest egg you worked so hard to build. What I have discovered in my own life is that once I had a good emergency fund in place (at least three month’s expenses) I felt more comfortable building my security basket by adding more insurance to protect my wealth and my family’s lifestyle.

*Assuming a 40% tax bracket

To protect your personal financial security apply for your own long term disability or critical illness and life insurance. Get underwritten by an insurance company to be sure you are covered. Your ability to have a constant income stream coming into your bank account is your biggest asset and one that should be protected.