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Savers Are Losers

How To Become A Millionaire (by age 65)

Saving money is a very good thing…

If you really want to become a millionaire this is how much you need to save each month to reach $1 million by age 65. (Assuming you are earning 8% annually).

Age 25: You’ve saved: $0
To reach $1 million, what you need to save per month: $286

Age 35: You’ve saved: $0
To reach $1 million, what you need to save per month: $671

Age 45: You’ve saved: $0
To reach $1 million, what you need to save per month: $1,698

Age 55: You’ve saved: $0
To reach $1 million, what you need to save per month: $5,466

So becoming a millionaire in your lifetime is easy!

You just need time and discipline to save towards that goal!

As you can see from the numbers above – time can be a great friend of yours as you work and save towards your goal of accumulating $1 million – or time can be an enemy to your accumulation process.

Below is a chart that illustrates a young person at age 25 saving $286 a month – $3,500 a year – towards $1 million…

Savers Are Losers Fig1

*Disclaimer: Data Compiled from Morningstar Canada. The rate of return or mathematical table shown is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the mutual fund or asset allocation service or returns on investment in the mutual fund or from the use of the asset allocation service. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

In fact, in 40 years of saving (assuming 8.93% growth) they will in fact have $1.156 million!
Bottom line: It has taken a total of 40 years to save (“out of pocket”) a total of $140,000 that will have created a total of $1.156 million!

Not bad? Right?

Some people work their whole lives to save a million dollars!

They believe in saving money! “A dollar saved is a dollar earned,” they say.

Yet is that really the best way to create wealth?

I remember starting out in my career feeling a real sense of accomplishment when I was able to convey the importance of a disciplined saving habit to clients. The feeling was even stronger when they began to begin to regularly contribute into their non registered and/or RRSP accounts.

I sincerely thought that I was really helping them to achieve their goals! And I was…but in a very limited way. Especially when it came to RRSPs.

Yet is that really the best way to create wealth?

See the problem and my solution to the problem here with this report:

“The UnCanadian Way To Deal With Your RRSPs”

http://HowToBeSetForLife.com/resources

Now, I certainly didn’t hurt my clients by giving them this well intentioned advice.

In fact, if it were not for this advice to this day would not have the amount of investment assets which they do have.

However, I began to wonder early on.

Is this the very BEST advice that I can give?

Is there another way?

As you can see, saving money is a very good thing…but I firmly believe that saving alone is not the smartest thing to do.

Remember: Work Smart – Not Hard!

Now let’s look at leverage: At the concept of money at work (where it works for you).
How do the wealthy do it?

The wealthy use their money to “create” more money than one could save in their entire lives!

How?

By using other people’s money (OPM)!

Why?

Because just saving money alone does not give you the 2 other benefits that “borrowing to invest” or leverage does.

Saving alone does not give you more money working immediately for you

Or

By giving yourself tax deducible interest for tax relief along the way. (Remember, that reducing taxes is just like giving yourself a raise).

Oh, and saving money alone, well…it takes so long!

A combination of creating the tax relief with your savings AND investing is the key to your success.

Now by doing these together see how far you can get.

If this same 25 year old were to go out and borrow $50,000 as a loan and have the repayment of that loan as an “interest only” payment. Assuming a 7% interest cost they would have a monthly “savings” commitment of $286 or $3,500 a year.

Savers Are Losers Fig2

*Disclaimer:
Data Compiled from Morningstar Canada. The rate of return or mathematical table shown is used only to illustrate the effects of the compound growth rate and is not intended to reflect future values of the mutual fund or asset allocation service or returns on investment in the mutual fund or from the use of the asset allocation service. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

At the end of 40 years this individual would have a portfolio worth $1.365 million!

This individual would have $208,563.45 MORE than the traditional “saver” route.

Oh, and there’s more good news!

Because the loan was for investment purposes (unlike a Canadian’s home mortgage interest) the interest carrying costs are fully tax deductible to you each and every year. (Just the same way as if you had put money into an RRSP – you get the same deduction value).

In fact, over the 40 year life of the loan (assuming a constant carrying cost of 7%) the total annual tax deductible interest costs for you would be $140,000!

And it gets even better…

If you are in the 40% marginal tax bracket you would have realized tax refund checks totaling $56,000!

So, in fact, your actual net “out of pocket” borrowing costs really are only $84,000. On which you have created a portfolio totaling of $1.365 million!

And this is even AFTER the $50,000 loan has been repaid from the portfolio.

Bottom line: It has taken a total of 40 years to save (“out of pocket”) a total of $84,000 that will have created a total of $1.365 million!

Summary:
The “saver” coughed up a total of $140,000 of their own money; gave themselves no tax relief to get $1 million…

The “borrower” actually had to cough up only $84,000 of their own money because they gave themselves tax relief to the tune of $56,000 and because there was more money working immediately for 40 years was rewarded with $208,563.45 MORE to show for their time and trouble…

Or look at it this way:

You can pay $140,000 for $1.156 million!
Or
You can pay $84,000 for $1.365 million!

Which looks like the better deal? Which is the smarter way to go?

Now what are YOU going to do about it?

About The Author

Mark Huber is a is a full time certified financial planner (CFP).

Mark has distilled 22 years of insights and experience in the financial services industry into “The UnCanadian Way” series of eBooks, audios and videos.

For the latest: “How To Get Rid Of Your Mortgage – The UnCanadian Way”
Visit: http://HowToGetRidOfYourMortgage.com
2008 Mark Huber

This article may be freely distributed if this resource box stays attached.

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Mark Huber is a certified financial planner, author, speaker, coach and successful online entrepreneur. Marks philosophy: "The best way to predict your future is to create it...." Marks top requested titles: "The 8 Top Simple Ways To Get More Leads & Sales For Your Business On LinkedIn" "How To Blog To Make Money" "How To Get Rid Of Credit Card Debt Fast" "How To Get Rid Of Your Mortgage And Create Wealth - The UnCanadian Way" Marks mission: "To teach, support and empower people as they transform their lives!"