What if I told you that there is a legal way to pay less tax every year? What if I told you that there was also a way to retire earlier and with more money than you would have if you continued down the path you’re on right now? Would you take advantage of this? Of course you would! Well then keep reading and let’s get started…
Almost every individual has a tough time saving. In fact, almost half of all individuals are living paycheck to paycheck… and sadly, this includes thousands of people making $100,000+ salaries! Terrifying!
It’s easy to see that there’s an enormous issue with spending. People have developed some really bad habits in terms of expenditures – treating themselves to unnecessary purchases each and every day, convincing themselves that they need the latest gadgets, finding reasons to celebrate with expensive restaurants, haircuts, massages, makeovers and the list goes on! If you are guilty of some, or heavens forbid, all of these; I urge you to read some of my previous articles and take action today, you need to be cured of first-world slavery, one of the most dangerous diseases that can cost your financial freedom. Here’s two articles to get you started, let the healing begin:
Now onto the main topic of today’s blog. What is the primary counter-measure to unnecessary delayed financial freedom? It’s taking the time to master the art & science of systematic investing. Today it’s simply not enough to store your money in a savings account and sit on it comfortably as a safety net. In fact if you’re sitting on a reasonably sized savings account you’re literally throwing away money and delaying your own path towards financial freedom. You see, even high-interest savings accounts return 1.8% interest or less. That’s barely on par with the last few years average inflation rate. Sadly, you’re barely breaking even!
On the other hand if you invest your hard earned money into the stock market’s index funds, you are likely to earn an average return of 8.5% annually (Not sure how much of a difference these few additional percentage points will make? Read this blog: Do you invest in mutual funds? You could be giving away your financial freedom!).
Now to my point. Why systematic investing? There are many reasons but here are the most important ones:
- Pay yourself or gift the government
By being paid a salary, you are entitled to make tax-reducing investments towards your own financial freedom. It’s done by investing your savings into a retirement savings plan (RSP). For every dollar that you invest, you will directly reduce the amount of income that you can be taxed on for the year (note: some rare exceptions apply, talk to your accountant). That’s right! What I’m saying is that by investing towards achieving your own financial freedom, the government will tax you less. This alone should be the most compelling reason for you to get started today!
- People have a very difficult time saving
Systematic investing forces you to save money each and every time you are paid. Start today with 10% and aim to increase it regularly until you reach at least 25%. If you feel like you can get a little higher, keep going. The closer you get to saving 50% of what you make, the faster you will achieve financial freedom! How fast? Check this out: The Shockingly Simple Math Behind Early Retirement.
- Work for a reason
If you need to work in order to earn money, by saving a percentage of your earnings you’re essentially working for yourself in order to achieve your own financial freedom. If you are saving 10%-25% then you are working 1-2.5 hours each and every day towards achieving your own financial freedom. This alone makes getting up each morning and going to work that much more enjoyable and rewarding.
- Take advantage of stock market volatility
There’s no secret that the stock market is volatile. By purchasing investments on a regular basis, you’re taking advantage of that volatility by averaging your investments over time. Contrary to individuals who purchase their stocks once or twice per year, you’re not taking a risk that you happen to be purchasing when the stocks are inexpensive. In order to make money in the stock market you need to buy low and sell high, even the most experienced investors barely beat the market averages, unless you’re a sophisticated investor and it’s your full time job, don’t try to time the market, you’re essentially gambling with your financial freedom.
Systematic investing isn’t new, nor is it my own unique concept. It’s a topic that’s covered in more detail in a book called The Automatic Millionaire by David Bach. If you’re looking to get started in investing then it’s a solid read for any beginner.
Don’t procrastinate, get started today. Before you know it you’ll achieve financial freedom and will be able to work because you want to; not because you have to… and that’s when the real fun starts!
Founding Partner, Amplified Investments