How to become financially rich
Recently, I was reading an article that seemed to say that Canadians are getting richer and richer. Eliminating debts and accumulating a few assets makes this situation happen. So, how to become financially rich without breaking your head.
To be honest with you, I was surprised (and at the same time very pleased) to read that household financial statistics in Canada have improved over the past few months.
Indeed, the news regarding household finances is good, despite the events of recent years:
- financial crisis;
- stock market storms;
- global pandemic;
- easy access to low interest credit.
I’m really happy with its results because healthy personal finances can have direct positive impacts on your economy and on your environment.
For your information, it looks like household assets have increased by 6% to a net worth of around $200,000 per person.
These data come from Statistics Canada.
How to Become Financially Rich and Multiply Your Wealth
If you too want to increase your net worth and wealth, you must take these families as an example and implement techniques to positively change your financial situation.
I suggest you apply these 3 basic principles right away to know how to become financially rich:
- become the owner of your principal residence;
- invest in the stock market;
- reduce your level of debt as much as possible.
Applying these 3 actions will consistently increase your net worth and your family’s wealth.
1-Own your house
Know that one of the most important reasons that explains the increase in net worth of Canadians is based on the fact that they own their principal residence.
Indeed, in recent years, the value of real estate assets has increased mainly due to lower interest rates and greater demand for the desire to own a home.
The principle of supply and demand what!
It is obviously very healthy to invest in real estate to create wealth and equity.
On the other hand, the danger is to stop here and only own this asset class.
Know that nearly 70% of household net worth is tied to the home.
It is clear that the importance of owning your home is a solid foundation for achieving financial wealth .
However, don’t forget the concept of diversifying your assets to ensure balance in your financial plan.
In short, basing your value creation solely on this pillar will be dangerous for you in my opinion. Diversification is not only good for your stock portfolio, but also for all your financial assets.
Another such important pillar that can explain the improvement in family finances in Canada is stock market investment.
Owning your own stock portfolio is one of the best ways to get rich without breaking your head.
Whether through your RRSP, your TFSA or any other investment vehicle, stocks should play an important part in building your net worth.
Investing in stocks means taking part in the profits of companies.
Knowing that the average growth is 4-5%, that an average dividend of 1-2% is possible and that inflation of 2-3% does the rest, returns of 7% to 9% annually are very realistic.
With these returns, you double your money in 9 years .
3-Reduce your debts as much as possible
To increase your net worth, pay attention to your debt.
It’s smart to grow your assets while keeping debt levels manageable.
Watch out for easy debt with the historic low interest rates we are seeing right now. It’s easy to fall into the trap of over-indebtedness!
Imagine the following disaster:
- your assets are growing, but the day rates start to rise, your balance sheet gets pretty grim. Your debt service goes up and the value of your real estate goes down.
This is definitely the recipe not to do to get rich.
Unfortunately, people often buy a house that is more expensive than they can afford , thereby increasing their assets.
By the same token, the acquisition of this house is made with the money you borrowed from the bank.
The scenario is perfect as long as the market holds.
However, when the value of the real estate falls, your assets will also fall, and unfortunately, your liabilities will remain very present.
How to avoid the worst and succeed financially
The news of increasing net worth in households is obviously good news.
On the other hand, I believe that this growth in value is the result of the use of a lot of financial loans with mortgage loans for example.
Debt is a solution to get rich , but it should not be excessive.
The credo for creating your wealth is quite simple:
- diversify your sources of income;
- stick to your budget and control your expenses;
- multiply your assets (stock market and real estate);
- buy assets within your ability to pay.
The most difficult thing to do is not to understand it, but to apply this principle to the letter .
I think the last point is the most important for you if your goal is to increase your wealth.
It all starts from there actually.
For my part, I use the leverage effect and the principle of indebtedness to enrich myself and obtain assets.
On the other hand, I always respect one condition:
- the asset in question must provide me with income to allow me to repay the liabilities that I used to purchase this asset.