how to retire a millionaire. so what is your plan? most people don’t have a plan for becoming rich...
TRANSCRIPT
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How to retire a millionaire
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So what is your plan?
• Most people don’t have a plan for becoming rich or wealthy
• If your only plan is to marry someone rich, then you should consider:– The rich prefer to marry other rich people– What qualities do you possess that would make a
rich person want to marry you? Looks fade...– If you are lucky enough to marry rich, what would
you do if they left you? Prenups...
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Types of millionaires
• 1. Millionaire on paper• - has non-liquid assets, eg. House, worth over
$1 000 000, but would have to sell them to get the cash (and nowhere to live?)
• 2. Million(s) in the “bank”• - has cash or liquid assets (eg. Stocks, RRSP’s)
worth over $1 000 000. This I assume is the kind you would like to be.
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Rules
• 1. Pay yourself first
• 2. Invest a minimum of 10% of your gross income for long-term growth
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What most people do wrong!
• 1. They get paid eg. $1000• 2. They deduct their bills - rent
• - food• - transportation• - entertainment• - other expenses
• 3. Anything (usually nothing) left over at the end of the month goes to savings
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Rules
• 1. Pay yourself first• This means that when you get paid, the first
thing to set aside is your savings! It’s your money after all! Then pay the bills, etc.
• 2. Invest a minimum of 10% of your gross income for long-term growth
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Paying yourself first!
• 1. You get paid eg. $1000• 2. Take out savings -$100• (10% of $1000 = $100)• 3. From the remaining $900 pay your bills
• - rent• - food• - transportation• - entertainment• - other expenses
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It can be painless...
• The best way to pay yourself first is to have the money automatically deducted from your account as soon as your paycheck is deposited.
• This way you don’t ‘see’ the money, so you don’t miss it
• You can do this yourself, get your employer to do it, or a financial advisor to do it for free
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Investing for long-term
• If you start at 16, investing $100 a month, and averaging 8% interest over the long-term, the magic of compound interest comes into play:
• AGE Investing • 16 $100 x 12 months = $1200/year
• Value at age 65 = $1200 x 1.08^49 = $52 112.90
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The easy/boring way
• Age Amount Value at age 65• 16 $1200 $52 112.90• 17 $1200 $48 252.69• 18 $1200 $44 678.41• ... $1200 ...• So 2 years of investing will be worth $100 000
when you retire, 3 more years $100 000, and so on...easily >$1 000 000 when you retire
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Investing in what?
• Definitely not leaving money in your bank account or Canada Savings Bonds...
• To earn a minimum of 8% over the long-term you (or your financial advisor) will pick:- RRSP’s - Stocks- Mutual Funds - Bonds
• It is not difficult to get or exceed 8%, it just takes a little research
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But that’s just the beginning
• then there is “free” money• when you are working full-time, you get your
RRSP deduction limit -> the amount of money you are allowed to put into an RRSP each year
• money you put into an RRSP is deducted from your income = INCOME TAX REFUND
• It is important to try to maximize your RRSP contribution each year
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So here is the ideal case
• your RRSP limit is $2000, of which you have already used $1200, leaving $800 to invest
• but suppose you don’t have $800 to invest...
• No problem! Go to your bank and get an RRSP loan (An income tax program like Quicktax will calculate the actual amount, but we’ll assume it is the ideal situation of $800)
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RRSP Loans
Get an RRSP loan for $800
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RRSP Loans
Get an RRSP loan for $800
Invest the $800 in RRSP’s
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RRSP Loans
Get an RRSP loan for $800
Invest the $800 in RRSP’s
File your taxes, get a refund of $800
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RRSP Loans
Get an RRSP loan for $800
Invest the $800 in RRSP’s
File your taxes, get a refund of $800
Use your refund to pay back the loan
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What was the point of that last one?
• In case you missed it, you have $800 extra in RRSP’s, but you technically didn’t pay anything for it
• The tax refund for buying the RRSP’s paid off the bank loan, so you don’t owe the bank anything
• In other words, you got $800 extra in RRSP’s when you didn’t have $800 of your own money to buy them
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And with an extra $800 for “free”
• Age Amount Value at age 65• 16 $2000 $86 854.83• 17 $2000 $80 421.15• 18 $2000 $74 464.02• ... $2000 ...
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But you probably don’t want to wait until you are 65...
• by 20 you’ll probably have enough for a good (used?) car
• by 25-30 you would have the down payment on a townhouse or condo
• You can make a one-time withdrawal from your RRSP’s TAX FREE to buy real estate (So the longer you wait, the more you have)
• Real Estate can be a great way to retire early
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A Good Example of Real Estate
• So you wait to buy real estate, and buy a condo that costs you $1000/month (mortgage, property tax, maintenance, etc.)
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A Good Example of Real Estate
• So you wait to buy real estate, and buy a condo that costs you $1000/month (mortgage, property tax, maintenance, etc.)
• Instead of living there, rent it out for $1500/month, which means you get an “income” of $500/month for “doing nothing”
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A Good Example of Real Estate
• So you wait to buy real estate, and buy a condo that costs you $1000/month (mortgage, property tax, maintenance, etc.)
• Instead of living there, rent it out for $1500/month, which means you get an “income” of $500/month for “doing nothing”
• Add that to your 10% savings, so your $2000/month becomes $2500/month
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And so on...
• As the tenants pay off your mortgage for you, the real estate increases in value. After 2-3 years you can get a Home Equity Line of Credit from the bank to buy another property
• If the new property costs you $2000/month and you can rent it out for $3000/month, then you get another $1000/month income for “doing nothing”
• Repeat every 2-3 years
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And so on...
• Eventually you can sell one property to pay off the mortgage on one or two of the others. This means that most of the remaining rent becomes your income (eg. $1500/month)
• When your monthly passive income (income that you don’t have to do anything to earn) exceeds your monthly expenses, YOU ARE OUT OF THE RAT RACE AND CAN RETIRE
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That is what the rich do
Assets
Buy That generate
Passive Income$$$
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START NOW!!!
• The earlier you start, the easier this is to do, eg. 100/month, and it becomes a habit
• If you wait until you are 20, then you might have to invest $200/month for the same results
• If you wait until your 30’s or 40’s, then it might cost you $500/month or more and then that will really hurt
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It’s about this time that...
• Someone asks if (a) I’m doing this, and (b) am I a millionaire
• The best answer is NONE OF YOUR BUSINESS!• But...• (a) I learned/started this later, and • (b) Any illegal ideas you might have are stupid
ways to get rich, when you can do it legally and easily on your own
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Remember me?
• If you do take this to heart, follow the rules, and do well...I’d certainly be open to some kind of thank you gift in the future. No pressure...
• If you want to get more ideas, and learn more, then you could also see me about getting a group together to play the Cashflow 101 game.