4 STEPS TO BECOME WEALTHY | Long Term Strategy | Millennial Investing Guide Chapter 1
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4 STEPS TO BECOME WEALTHY | Long Term Strategy | Millennial Investing Guide Chapter 1

Hey guys it’s Adrian here. The Canadian in a T-shirt. And today I’ll be breaking down the four key
steps to become wealthy. These key principles are useful for anybody
at any age. Although I will be emphasizing millennials
like me right off the bat. If you’re looking for how to get rich overnight
this video is not for you. My strategy is built around growing wealth
in the long run. I’m talking about over the course of 10, 15,
20 years. My strategy is simple consistent and boring. I am not going to double my money overnight
and neither will you. The only way to get rich overnight is to be
born rich or to marry a millionaire for everyone else. You need to consistently grow your wealth. Year after year and these four steps will
get you there. Without further ado this is how to become
wealthy in four steps. 1. Pay off your credit card debts. 2. Reduce your spending. 3 Set up an emergency fund and 4 invest. Each of these steps are huge topics on their
own and I will definitely be making videos devoted to each of these four topics over
the course of the next week or two. Also I need to stress this is not a sequential
to do list. You don’t just go through these checking them
off one at a time then moving on to the next until you’re done. These four steps are the pillars of my financial
strategy and building wealth is a never ending cycle. I am constantly reevaluating where I am in
the cycle and before I make any financial decision I consider how that action will affect
each of these four pillars. So let’s start at the top. Paying off your credit card debt in full before
you do anything else for your money you need to get rid of your credit card debt and any
other high interest that you have. Most Canadians have debt usually in the form
of mortgages student loans or car loans. But these loans charge pretty low interest
rates usually less than 5% You do need to pay these loans off but not
right away. The debt that I’m talking about is from credit
cards and payday lenders credit cards in Canada charged between 20% and 25% interest on your
debt and payday lenders are even worse. They can charge upwards of 50% interest and
sometimes even up to 200% interest on your debt. You should avoid these payday lenders like
the plague and if you see signs like this around your town never ever go in. If you saw my last videos you know that I
am a huge fan of credit cards but only if you pay off your monthly statement in full
each and every month more than 30% of Canadians are in credit card debt. And that’s because credit card companies intentionally
make their terms confusing especially for university students who are the most vulnerable. I’ll dive deeper into understanding credit
cards and how to read a credit card statement in a later video. But for now I want to focus on one crucial
trap. The credit card minimum payment. This is something that drives me crazy. And this is how most Canadians especially
millennials fall into debt without even realizing it. I’m showing you the bottom portion of my last
credit card statement for my American Express card. You’ll see that I owe a total amount of $1822 But right below it it says that the minimum
payment I must make is only $10 and I have to pay this $10 to avoid penalties. This is a trap a terrifying number of young
Canadians think that as long as you make this minimum $10 payment you won’t be charged
any penalties or fees. This is wrong. I have to pay the full balance owing which
is $1822 by the due date. If I want to avoid paying interest as long
as I pay this $1822 by this due date American Express
will not charge me any interest or any fees. In fact I’ve gained a small 2% cashback
bonus but if I only pay the $10 minimum amount I still owe American Express $1812 and as soon as the deadline hits at the end of the month
American Express will start charging me 20% 20% interest on this debt. That’s an additional $360 at the end of the year and then an additional $430
at the end of the second year. If I keep paying only the minimum $10
amount my original $1800 debt will double in less than four years. This is how credit card companies get rich
and this is why so many Canadians will never escape their credit card debt. Again I I will make a video solely focused on credit
card debt in the next few weeks but my main point is that if you have any high interest
debt either credit card debt or payday loan do not even consider investing or putting
that money in a savings account. There is no investment or savings account
out there that can give you a 25% returns. But if you take whatever income you have and
pay down your credit card debt you are saving yourself this 25% interest. Working against you and that is a guaranteed
return of 25%. So if you have fully paid off your credit
card debt and other high interest debt then it’s time to move on to number two reducing
your spending. Step number two is to reduce your spending
or below your means becoming wealthy is not about how much money you earn. It’s about how much money you keep. If you earn $200,000 a
year but you spend over $190,000 on fancy cars fancy dinners
fancy clothes you’ll never get wealthy. Even though you have a huge salary. This is why you hear the stories of people
who win the lottery and end up becoming bankrupt within the first year they earn a huge amount
of money but they don’t know how to control their spending and they waste their money
on things which will never bring any value back to them. I’m an extremely frugal guy. I don’t like spending money and I always live
below my means and lower my expenses. For example instead of going out to buy lunch
every day which would cost me between $10 and $15 a day I pack a lunch and bring
it to work every single day. You may think $15 is nothing. It’s a drop in the bucket. But if you work five days a week you’re spending
almost $4000 a year on lunches. Instead you could have invested that $4000
into your retirement fund or taking your family out to a vacation. Using my very strict budget and spending discipline
I’m able to save about 40% of my monthly income. This allows me to put aside and invest this
40% of my income in things like stocks real estate and in my own business. Of course everyone is different and I have
the luxury of being independent. I don’t have a family or kids that rely on
me and so I’m able to cut down on my expenses and save a huge portion of my income at least
in my 20s. The point here is that even if I doubled my
salary next year I would still try to live below my means. I wouldn’t move into a fancy apartment and
I wouldn’t upgrade to a luxury car. I would try to maintain my standard of living
and maintain my monthly expenses so that I could put even more of my income into investments
for the future. Again it’s not about how much money you make. It’s about how much money you keep and to
grow your wealth. You really only have two options either increase
your salary or reduce your expenses. Ideally you want to do both but you can’t
increase your salary overnight. It takes a lot of work and a lot of time to
increase your salary by getting a promotion or you can spend a whole lot of time getting
a second job doing things like freelancing or driving Uber but instead of just focusing
on trying to increase your income it is so much easier to reduce your expenses. The thing is you can’t reduce your expenses
if you don’t know how much you’re currently spending. That’s why I made this budget excel sheet
where I keep track of every single expense I make. I’ll make a video soon where I’ll break down
exactly how this Excel budget sheet works but basically every day or two I go through
all of my receipts and all of my online credit card accounts to see every single purchase
I’ve made. Then I put these expenses in different categories
living expenses groceries restaurants car expenses entertainment and miscellaneous. At the end of the month I took a total of
how much I spent in each of these categories and what my total monthly spending was. If you’re mindful and consistent with your
budget these monthly totals for each category should be pretty constant. And that’s a good thing. That means you can always predict how much
you’re likely to spend in the upcoming month. Finally at the end of the month I enter my
total income earned and then this formula here calculates the percentage of savings
I made. I always aim to save around 40% of
my income. I’ve uploaded this Excel budget template onto
my google drive account. If you want to use it then click the link
in the description box below click the download button and then you should be able to open
it on Excel and use it for your own personal expenses reducing your spending and Living
Below Your Means is not a one time thing. You have to constantly re-evaluate your budget
every few months and whenever a big change happens in your life. Things like getting a new job a new partner
or a new home. The next step to building wealth is to grow
an emergency fund an emergency fund is a stash of money you set aside to deal with emergencies
or anything unexpected that comes your way. This money is not designed to make you rich. It’s designed to act as a buffer or a shield
to protect your investments. Let’s say you get to a car accident and it
cost you $2000 to repair your your car. You need to pay this money out of pocket right
away. So what do you do if you have an emergency
fund. Just withdraw the $2000 you
need. Pay the mechanic and your investments are
untouched. Next time you get paid. Put that money back into the emergency fund
to replenish it. But if you didn’t have an emergency fund you
might be in trouble. You will have to tap into your investments
and sell off stocks or bonds to get this two thousand dollars. The problem is you need this money today. So if you sell off your stocks today you might
be losing a lot of money. Maybe the value of your stocks took a dip
last week. And normally that wouldn’t bother you since
you know the value will bounce back up in a few weeks. But now you need to pay the mechanic today
and so you’ll be forced to sell the stocks at this lower value and as soon as you make
that sale you’ve already lost money. Even worse what if you can’t sell your investments. What if your investments are tied up in real
estate or GICs. It takes weeks or months to sell real estate
and you need that money today. So your only option is to charge that $2000 to your credit card and now your monthly credit card balance is $2000
more than you planned. So maybe you can’t make that full payment
this month and now you’ll be charged 20% interest on this debt so you can see having
a few thousand dollars saved up in an emergency fund can save you a huge amount of stress
and a considerable amount of money. If an emergency ever comes up your emergency
fund should not be tied up in investments. It should be sitting in a high interest savings
account where there is zero risk. If you have $3000 sitting
in a savings account it will never lose value. It will earn a constant and steady interest
rate usually around 2%. Personally I like to keep my emergency fund
in a high interest savings account with Alterna Alterna Bank and they pay me 2.3%
interest on a monthly basis. I like to keep between $3000 and $4000
in this emergency fund. That’s enough to cover all of my expenses
for at least a month or two in case anything were to happen and I were to lose my job. But everybody is different. If you have a mortgage and two kids you’ll
probably need more than $4000 in your emergency fund. But don’t go too far with this. If you have $10,000 sitting in
a savings account sure you’ll be safe from any possible catastrophe that might fall upon
you but your $10,000 is only earning 2.3% interest or
$230 a year. If instead you were investing this $10,000
you could be earning upwards of 7% or 8% interest a year. Once you have an emergency fund set up in
a savings account you want to make sure that you always have enough money in there to keep
you afloat for at least two months. Any money beyond that is frankly being wasted
in a savings account and should instead be invested the last and most fun step is investing
everything I’ve talked to up until this point has been about protecting yourself and protecting
your current wealth. But investing is how you make your wealth
grow. If you live by steps one to three you’ll be
saving money each and every year and avoid paying huge interest and fees to credit card
companies. But all of these savings will only be earning
you about 2% interest in a savings account. And honestly most of that 2% gain will
be eaten up by taxes and inflation instead if you invest your money you could truly make
your money work for you. Warren Buffett the undisputed greatest investor
in our lifetime famously said If you don’t find a way to make money in your sleep you
will work until you die. No retirement no relaxing on a beach you will
have to work every single day until you die. And these words could not be more true. Most people rely solely on their full time
job to make money. That means that they have to work 8 hours
a day or more just to get money at the end of the week. But if they stop working they stop getting
paid and their income dies and because of that you’ll always have to work more and more
hours and work harder and harder to get more money. But there is a limit. People can’t work 24 hours a day and they
shouldn’t. We need to have a life outside of work. We need to spend time with our family and
friends and find joy in life. But on the other hand if you invest your money
your investments are working for you 24 hours a day. Your investments are making you money in your
sleep and that is the only true way to become wealthy. I love talking about investments and so I’m
going to be making dozens of videos just on investing. But for today I want to keep it super short. Investing is any anytime you put money aside
today with the expectation that you’ll be able to take more money out in the future. For example if you go out today and spend
$1000 worth of Starbucks coffee that money is gone. Sure that coffee gave you joy and it was fun
while it lasted but as soon as that $1000 leaves your hands it will never come back. Instead if you went out and invest that money
by buying $1000 worth of Starbucks stock now you are a tiny owner of the Starbucks
company. And so you are entitled to a tiny portion
of the Starbucks profits for today. You’ve still lost $1000 out of your
bank account but every three months Starbucks will pay you a percentage of the profits. This is called a dividend so that $1000
you’ve invested is now paying you every few months. On top of that as the years go on and Starbucks
as the company grows and grows your $1000 invested is now worth even more than that. And if you want to you can now sell your Starbucks
stock for let’s say $1500. In this way your $1000 investment has
made you a $500 profit. Plus all the accumulated dividends you’ve
received over these past few years. Compare this to that first case where you
spent $1000 on Starbucks coffee. That $1000 is gone and five years later
you’re still left with nothing. This is a very simple example which hopefully
illustrates what an investment is and how it can make wealth grow. And stocks aren’t the only types of investments. You can also invest in bonds mutual funds
ETF real estate and you can even invest in yourself by starting your own business. I’ll be breaking down all of these types of
investments in my next video which I’ll release later this week. And there you have it. Those are my four key steps to become wealthy. Pay off your credit card debt reduce your
spending set up an emergency fund and invest. These are the four cornerstones of my financial
strategy and you should always evaluate these four steps before you make any decision about
your money again. This will not get you rich overnight. It will take years and years to grow your
wealth but if you keep this mentality and you keep these four principles in the back
of your mind you will become wealthy. One step at a time. Thanks for watching guys and be sure to like
comment and subscribe. I’ll be posting a new video every Thursday
and let me know in the comments below. What’s your financial strategy. Be sure to tune into my next video where I’ll
be breaking down the types of investments and how to start investing. As a millennial thanks everyone and I’ll see
you guys on the next episode of the Canadian Canadian in a T-Shirt. Bye guys.

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