How to Make Your First Million

DailyXY’s MoneyGuy blog is sponsored by RBC

Not born rich? If you’re going to be a millionaire by age 65, you’ll probably need to save about 10 per cent of your net income, starting at age 25.

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Saving that 10 percent will likely mean forgoing impractical but sexy two-seaters for something more budget-friendly. (Edmunds.com recently named the 2003-2008 Hyundai Elantras as the best used compact sedans money can buy.) These types of decisions aren’t complicated. Many are simple, and can lead to substantial wealth.

Save
The easiest way to save is to setup an automatic savings plan. Every paycheque, a predetermined amount of your income will be transferred to a safe, separate savings account instead of the tip cup at the bar. That cash becomes your “don’t touch” money, and over the years it’ll build into a big pile.

Scrimp
When spending the remainder of your paycheque, look for deals. There are thousands of ways to save. Shop at a discount grocer. Get a house whose mortgage you can pay off in 15 years. Search for coupons and freebies on RedFlagDeals.com and SmartCanucks.ca. Purchase a reliable used car rather than leasing. Ask “Can you do better?” to the salesperson when you’re out shopping. (The author of Rich by Thirty, Lesley Scorgie, has said that you’ll get a discount nine times out of ten when you do.) What you skip altogether, and what you allow for, depends on what you consider important; no doubt, however, getting rich means denying most impulses.

Save More
It’s also possible to save on your investments.  The management fees (MERs) of mutual funds vary substantially, ranging from as low as 0.31 per cent of a fund’s worth, to over 3 per cent. No surprise that the cheaper funds typically outperform the more expensive ones over the long-term — since they don’t have to overcome the extra cost. To start picking a cost effective fund, visit the Globe’s Monthly Fund Review, which shows you the MER of a fund, plus how well  it’s performed in the last five and ten years.

Image courtesy of sjoerdtenkate.com.