There are all kinds of opportunities out there for making money and it’s easy to get caught up in the excitement of it all. When we’re living in a culture of debt and insufficient savings, however, with Canadians spending $1.68 for every dollar they earn in 2016, is it just me or is there a conversation that’s being left on the table?
Here are 4 things to be aware of when getting out of the rate race (the fine print if you will).
1. Making money is hard work
Making any kind of money is hard work but it takes time, effort, and discipline to make the kind of money where you’re rich. We live in a time of instant gratification so, it’s difficult for us to look 5, 10, 20 years down the road which, realistically, is how long it will take to make any significant amount.
2. There are taxes, expenses, and interest payments to account for
Let’s say you’re making $60,000 per year and you work for only 20 years somehow before retiring. You will have made $1.2 million during that time and yet, chances are you’re not a millionaire. That’s because with each salary, dividend, or interest cheque you may receive, there are taxes to pay. After taxes, there’s your monthly expenses. And finally, if you have any type of credit, including a mortgage or a financed vehicle, there are interest payments that eat away at the $1.2 million you’ve made.
3. There’s risk involved
There is a difference between savings and investments. Savings include the money that you cannot afford to lose, while investments include the amount of money you risk in hopes of making a profit.
There’s also inflation risk. A simplified example of inflation risk is where the $100 you save today is worth only $90 in the future. Because of inflation risk, there’s a need to make more money.
4. Life happens
Quite often we make plans for our lives and then something gets in the way. A car breaks down, your family member gets sick, you decide to go back to school, the upkeep of your house is more expensive than anticipated, or your cousin is getting married in Italy and the list goes on. Any time your dip into your savings or liquidate your investments, you’ll have to start saving or investing all over again.
The key to getting out of the rat race is not a focus on high rate of returns as is commonly believed. It is being aware of what’s causing us to lose the money we already have and finding ways to stop the loss from happening.
As Robert Kiyosaki says, “it’s not about how much money you make, but how much money you keep, how hard it works for you, and how many generations you keep it for.”