How to Become a Millionaire in Canada
Becoming the next Canadian millionaire is something many of us aspire to, and can actually accomplish with the right knowledge and strategy.
Contrary to popular belief, most millionaires didn’t become that way by receiving a large inheritance, or by getting lucky and winning the lottery. Time after time working class professionals, think educators and engineers, become members of the millionaires club.
If you want to know the secret to becoming a millionaire in Canada, we’ll share all we know about how you can do it. By starting early, living conservatively and being consistent, you just might even be able to build a net worth of one million by the age of 35!
How I Became a Canadian Millionaire
Looking back, at a high level, this is how I became a millionaire before the age of 35
- I started young with wealth building in mind! Like many young people, we started off with relatively high debt (mortgage, car and student loans). We focused on being as efficient as possible with our money to get rid of that debt. Our first house was a 2-apt where we lived in one unit and rented out the other. While it was a little work being a landlord, the rental income helped offset a large portion of the mortgage payment (don’t forget the interest deduction!). I should also note that we live in Eastern Canada where real estate prices are (still) fairly reasonable.
- Even as our incomes increased, we kept our lifestyle in check (we still to this day live a fairly conservative lifestyle). This enabled us to increase our cashflow overtime to pay off debt early and build long-term investment portfolios at the same time!
- With our expenses under control, we strived to grow the other side of the equation – income! We purchased another rental property, I worked two jobs, and started an online business that expanded over time. We further invested the increased cash flow/savings with the goal of letting the investments compound over the long-term. Doing all these side hustles was great, but as you might have guessed, with a growing family the extra activities had to be scaled back over time.
- When I first started investing in my teens, I went after home run stocks (Nortel anyone?). Overtime, I honed my investment strategy to focus on keeping costs low, building a portfolio that is as diversified as possible (index investing), with a tilt towards generating tax efficient income (dividend investing). In fact, to this day, I own Canadian dividend stocks for my Canadian market exposure, and index ETFs for international exposure (some US dividend stocks thrown into the mix as well). To give you an idea on what an index portfolio can return, we started an RESP at the height of the market in 2008 and despite this, the portfolio has returned over 8% annually. For beginners out there, here is how the stock market works.
- Check out this post on more nitty gritty details of my million dollar journey.
Tips to Getting Rich in Canada And Making Your First Million
1) Get in the Millionaire Mindset
To get into the millionaire mindset, the first step is to focus on your “why”.
Is your drive to become a millionaire so that you can retire comfortably at a reasonable age?
What about achieving financial freedom in order to give yourself a feeling of financial security without having to worry about having a job solely for the purpose of providing income?
Quantify the amount of wealth you want into an achievable and measurable goal.
An efficient way to work towards your goals is to measure your progress. I used my net worth as my wealth metric over the years.
2) Get your (Bad) Debt Under Control
Believe it or not, there are two types of debt.
Good and bad debt. Some may consider all debt as “bad”, so perhaps a better way to look at it is bad debt, and less-bad debt.
Bad debt is defined as borrowing to buy a depreciating asset. So that could be a large car loan (cars typically decline about 50% of their value by year 3 or 4) and even worse, with a prolonged loan term. Even so, at least car payment interest rates can be as low as 0%, but there really is no excuse for credit card debt.
Credit card debt typically starts in the 12% to 18% range which can really eat into your cash flow (and future wealth) if you let the balance grow enough.
What about “good” debt? This is generally borrowing to purchase an appreciating asset that pays you (like investment properties and/or equities). This has the double benefit of appreciation over time, and a tax deduction on the interest paid. Note though, borrowing to invest (leveraging) requires high-risk tolerance and should be carefully assessed before taking the leap. Here’s some more information on my leveraged investing strategy using the Smith Manoeuvre.
Some might consider a mortgage on your principal residence “good” debt, but it’s debatable, but it’s definitely “less bad” than a car loan. Get aggressive in paying off bad debt and take your time with good debt.
For those of you with mortgages, here are some tips on how to become mortgage free.
3) Learn to Save
For regular working folk, the easiest way to build wealth is to save and invest. At least that’s how we did it.
The first step in that equation is to find a way to save as much of your cash flow as possible. How do you do that? You need to first figure out your cash flow.
Open up those credit card/bank statements and calculate what your regular expenses are over the last 12-month period (longer if you have the data). Then calculate the difference between your income and your expenses. The result is your cash flow.
The goal is to increase your cash flow as much as possible. For people just starting out on this wealth journey, the lowest hanging fruit is becoming more efficient with your expenses.
If you find that your expenses need to be reigned in a bit, there is hope! Here is a list of 25 ways to save money.
4) Invest like a Millionaire (Re: Boring)
For your sports fans out there, saving and building cash flow is like your defence. While some would consider defence to be vital for any sports team, they aren’t getting very far without some offence. That’s where investing comes in.
Building wealth requires not only “saving” your cash flow, but also “growing” those savings! This is where the fun begins!
For investors still accumulating for their retirement, one of the easiest, efficient, and low-cost ways to invest is through All-in-one index ETFs.
Here are some additional ways to index your portfolio.
If you are a little more hands-on with your investments and like the idea of your portfolio generating tax-efficient passive income for your retirement, then check out dividend growth investing. I personally use DSR to help me manage my portfolio and I recommend their services to anyone who’s serious about dividend investing.
Qtrade can help you get started quickly and easily. Using an online brokerage like Qtrade is one of the best ways to help you reach your first million. If starting at 25 you invest a modest $500 per month, you’ll end up a millionaire by the time you are 65.
5) Be Fee-Savvy When It Comes To Investing
In the long run, if you want to become a Canadian millionaire, you should avoid all “expensive” investment opportunities i.e. those that levy heavy fees (whether per transaction or annually).
Once you have a nest egg, it all boils down to compounding interest, and it’s the same way with fees, they compound too.
For example, if your nest egg is $70,000 and you’re able to contribute $10,000 each year, you’ll be a millionaire after 30 years of savings when applying a modest annual return of 5%.
If you have opted for an investment that costs you 1% in fees each year, netting you only 4% annually, you’ll have just $810,000 after 30 years of savings.
Remember to take full advantage of your registered Canadian accounts like the RRSP or TFSA, as it will help you save more in taxes down the line.
The more your investment portfolio grows, the more important it becomes to choose the right online broker or stock trading app and continuously check and compare your provider’s fees.
6) Make More Income – Start a Side Hustle
Remember earlier when I mentioned that saving was the lowest hanging fruit in building wealth – what if you’re as efficient as you can be with saving? The other side of the coin is to increase your income! Increasing your income to further increase your cash flow for investing will supercharge your wealth.
Is it possible to get a raise from work? What about a side-hustle on something that you enjoy doing? Increasing your income can supercharge your financial goals – at least it did for us!
7) Invest in Real Estate
Investing in real estate is a great hedge against inflation, and can save you money on taxes. By using the Smith Manoeuvre, you can even structure your mortgage so it can be completely tax deductible!
Real estate tends to appreciate in value, meaning it is a great way to increase your net worth. While owning your own home can increase your wealth, owning and renting is the real sweet spot for generating millionaire wealth.
If you live in a location with high home prices, or just don’t have the money for a down payment, Real Estate stocks, or REITs, can provide you with the benefits of owning real estate without the heavy up front investment.
FAQ About How To Become A Millionaire In Canada
The Bottom Line
When first beginning your own million dollar journey, it can be overwhelming. There is a lot to consider and plan for. Unfortunately, this is where most people get stuck, making it impossible for them to reach that million dollar goal.
Like most things in life, simplicity is best. By managing your personal finances well and sticking to an investment strategy, you will be well on your way to earning your first million. Million Dollar Journey will be here to help you each step of the way, so keep coming back to find out more ways to reach your goal.
To get started on your investment journey, read our Qtrade trade, the top rated online brokerage in Canada.
Do you have a question? Feel free to ask away in the comments!
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