How to retire a millionaire

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...

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.

Rules

• 1. Pay yourself first

• 2. Invest a minimum of 10% of your gross income for long-term growth

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

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

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

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

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

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

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

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

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)

RRSP Loans

Get an RRSP loan for $800

RRSP Loans

Get an RRSP loan for $800

Invest the $800 in RRSP’s

RRSP Loans

Get an RRSP loan for $800

Invest the $800 in RRSP’s

File your taxes, get a refund of $800

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

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

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 ...

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

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.)

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”

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

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

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

That is what the rich do

Assets

Buy That generate

Passive Income$$$

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

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

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.