How to Get Rich In Canada: 10 Steps to Becoming a Millionaire
Who wants to be a millionaire? Better yet, who doesn’t want to be a millionaire? I believe money can’t make you happy in life, but becoming financially independent can make life easier for you and your family. So how does one build their net worth enough to be considered rich?
The good news is that there isn’t one formula for success. Instead, you acquire wealth by making a series of sound financial decisions over and over again. You need to save consistently, spend wisely, and take some risks throughout your life. This article will cover many tactics that will set you on a path to wealth. If you’re wondering how to get rich in Canada, you’ve come to the right place.
Why ‘Get-Rich-Quick’ Schemes Are a Myth
If I had a dollar for every time someone told me, “Once I win the lottery…”, you know how the rest goes. There is no shortage of get-rich-quick schemes being touted everywhere you look. Lately, cryptocurrencies and NFTs are all the rage. While there will always be someone, somewhere, who catches a break and stumbles on instant riches, the path to becoming a millionaire in Canada takes time and a lot of work.
What Does it Mean to Be Rich In Canada?
It’s essential to remember that most Canadians are very wealthy by other countries’ standards. Not only are we blessed with an abundance of resources and a strong economy, but we also have a social welfare system that offers most, though not all, Canadians a standard of living not found in many parts of the world.
However, looking at our own country, how much money do the wealthiest Canadians have? According to Statistics Canada, when it comes to annual salary, you need a yearly income over $250,000 to rank in the top 1% of Canadian income earners as of 2019. And there are more than 750,000 Canadians who report a net worth above 1 million dollars. That number can be deceiving, as many Canadians’ net worth has been bolstered by their home equity, as house values have continued to soar in recent years.
While home equity adds to net worth, it doesn’t hold the same value as cash or equity investments (stocks) due to its lack of liquidity. To me, true wealth isn’t tied to a specific number. A person is wealthy if they can live off of their assets’ income, and they don’t need to be actively working. Wealth equals freedom, and there might be no greater freedom than to be financially independent.
10 Ways to Get Rich In Canada
As I mentioned earlier, there is more than one path to achieve millionaire status. People get rich in a myriad of ways. Some invest in rental properties or start their own business to increase cash flow. Others build wealth through the stock market by chasing dividends and capital gains. There are, however, more steps you can take that will move you closer to becoming a millionaire in Canada. Here are ten things you can do to become wealthy.
1. Invest In Assets
You’ve heard the saying, “don’t place all your eggs in one basket.” By investing in several income-producing assets across various asset classes, you increase your chances of achieving an ultra-high net worth during your lifetime.
So, what exactly are asset classes? According to this source, it’s a “grouping of investments that exhibit similar characteristics and are subject to the same rules and regulations.”
For example, a rental property would fall into the real estate asset class, while individual company stock is considered an equity investment or asset. A government or corporate bond belongs in the income asset category.
Cryptocurrency is yet another type of asset, as is fine artwork. By owning multiple assets, you spread out your risk. Asset classes rise and fall at different times and at different rates. When some investments are doing poorly, others will be performing well.
Below is a list of assets to consider owning. I’ve included a mix of traditional and new, trending assets, with investment opportunities in brackets:
- Residential real estate (rental property, Airbnb)
- Commercial real estate (REITs, addy Invest)
- Peer-to-peer lending (Lending Loop)
- GICs/Money market
- Government & Corporate bonds
- Stock market
- Fine artwork (Masterworks)
- Antiques & Collectibles (sports cards, cars, etc.)
- Music Libraries (royalties)
2. Build Multiple Income Streams
Unless you’re a highly paid professional, like a doctor or lawyer, it’s unlikely that you’re going to get rich relying strictly on your 9-5. You can do it, but it will take years, decades even. One of the best ways to substantially increase your income is by building multiple income streams, such as real estate investing or a side hustle. It’s no secret that creating income-producing assets is one of the top wealth building strategies for millionaires.
Here is a list of just a few potential income streams you can try besides your regular job. For more inspiration, check out our side hustle guide, including 60 work-from-home job ideas!
Popular Income Streams
- Second job
- Rental property income
- Freelancing (writing, graphic design, etc.)
- Affiliate marketing
- Rent an Airbnb
- Royalty income (book sales, songwriting)
- Dividend income (stock investing)
- Uber driver
- Selling your products (i.e., Etsy, Shopify)
3. Grow Your Passive Income
While you’re dreaming up multiple income streams, try to find passive income ideas. Passive income is the kind that doesn’t require you to work as hard – in other words, there’s not an equal exchange of time for money. There are only so many hours in the day – passive income lets you make money from multiple sources simultaneously.
For example, let’s say you have an investment portfolio that generates $5000 per year in dividend income. That’s pure passive income – there’s almost no maintenance required, so you can earn money while you spend time doing other things.
Of course, not all passive income is truly passive. Often, a lot of upfront work is required to generate income-producing assets. A songwriter earns royalties whenever their songs are played on the radio or streamed on Spotify, but many hours of work were required first to write and record the songs. Eventually, it becomes passive income, but not right away.
To better understand how passive income works, here is a list of 27 passive income ideas.
4. Reduce Your Spending
Cutting your expenses is not as attractive as making money while you sleep, but it is an effective way to increase your net worth. The beautiful thing about reducing your spending is that you can start immediately; you don’t have to wait.
If you’re not keeping track of your spending, you might be surprised at where your money is going. Do you know how much you spend each month on credit card interest, shopping, or eating out? I’m not suggesting that cutting out your daily Starbucks will make you rich, but it could save you a couple of hundred dollars each month. That’s money you can use for wealth creation. You’ll have to decide if it’s worth the sacrifice.
Before you can cut spending, you need to know where your money is going. I recommend printing a 3-month history of your bank account and credit card statement. Then sit down, and go through each item, line-by-line. Total up the money spent on discretionary expenses – the non-essentials. The number might surprise you.
Don’t overdo your newfound frugal lifestyle if you decide to reign in your spending. Save aggressively, but don’t deny yourself every pleasure. Financial independence is a worthwhile goal; just don’t forget to enjoy the journey.
5. Create (and Stick to) a Budget
Once you get a handle on your spending, it’s time to create a budget that fits within your monthly cash flow. Your budget is your plan, and following it will help you achieve financial freedom over time.
You can create a budget the old-fashioned way – with pencil and paper or a simple spreadsheet. However, more and more people are using budgeting apps that automate much of the process. For the best budget app experience, I recommend YNAB or Mint, or check out some others in this article on the top budgeting apps.
6. Minimize Your Taxes
As a Canadian, you are among the highest-taxed people on earth. The more money you make, the more tax you pay. By taking advantage of tax-savings strategies, the money saved can go towards growing your net worth and boosting your financial freedom.
I’m not an accountant or tax expert, and I don’t provide tax advice. But if you’re wondering where to start, here are some common ways to pay less tax in Canada:
Maximize Your RRSP Contributions
A fully funded Retirement Savings Plan will set you on the path to millionaire status. Not only are RRSP contributions tax-deductible, but the money is tax-sheltered until you withdraw it, presumably after retirement.
Make Spousal RRSP Contributions
If you are married or live in common-law, you can make RRSP contributions into a spousal RRSP. This is advantageous when one spouse expects to have a significantly higher income after retirement.
The higher-income earner contributes to the lower-income earner’s spousal RRSP plan. The high-income spouse gets the tax deduction each year. At retirement, withdrawals are claimed as income by the lower-income earner, who will pay less tax on the money as it’s withdrawn from the RRSP.
Contribute to a TFSA
In 2009, the Canadian government unveiled the Tax Free Savings Account, or TFSA, giving Canadians another tax-sheltered investment alternative to the RRSP. The beauty of the TFSA lies in its flexibility. Contributions are not tax-deductible, but unlike an RRSP, you don’t pay tax when the funds are withdrawn. While more and more people are using their TFSA account as additional retirement savings, the funds can be used for any purpose.
Borrow Money to Invest
You can deduct the interest paid on money you borrowed to invest in certain situations. The Smith Manoeuvre is a good example, but not the only one. This savvy tax-savings strategy involves converting the mortgage on your principal residence into a tax-deductible investment loan. For more information, check out our article on the Smith Manoeuvre, updated for 2022.
Claim Child Care Expenses
If both you and your spouse work full-time outside of the home, you may be able to claim your child care expenses as a tax deduction. This includes the cost of daycare, hiring a nanny, etc. Make sure you keep all of your receipts if the CRA asks for proof.
Claim Medical Expenses
Medical expenses not covered by insurance might be tax-deductible. Make sure you read up on the CRA rules and consult a tax professional with any questions you have.
Contribute to an RESP
If you have children, you can save for their education in a tax-sheltered investment vehicle known as a Registered Education Savings Plan, or RESP. The tax savings of an RESP will allow you to accelerate your child’s education savings. Not only that, but the government matches your contributions with a 20% grant, up to an annual limit. When you withdraw the funds, most of the money is taxed in the hands of the child, who will undoubtedly be in a low tax bracket while in school.
Donate to Charity
Charitable donations are not only an expression of generosity; they are also a non-refundable tax credit that will reduce the amount of taxes you pay each year. Consider increasing your charitable giving as your income increases.
Claim a Home Office Tax Credit
If you are self-employed, you can claim the area of your home that you use as your primary workspace as a tax credit. For example, if you use 20% of your home’s square footage for your work, you can write off 20% of your utility bill, mortgage interest, property tax, etc.
These are just a few of the many tax-savings strategies you can use to save hundreds, if not thousands of dollars each year. Imagine how much faster you can get your net worth over a million dollars by paying less income tax.
7. Start a Side Hustle
Earlier, I mentioned the importance of creating multiple income streams. One of the fastest ways to make more money is by starting a side hustle. A side hustle can be anything you do to make money around your regular 9-5 job. It could be a gig economy job, like driving for Uber or food delivery, freelance work, product sales, or renting out space in your home through Airbnb. The possibilities are endless. Some side hustles will pay a couple of hundred dollars per month; others pay thousands. It might seem like a small step, but it can be a huge one on your journey to becoming a millionaire.
8. Don’t Save Your Money, Invest It
If you want to reach financial independence, you’ll need to be saving aggressively, but saving money alone probably won’t be enough. You’ll need to invest most of your money in the stock market, to get the compounding returns required to build wealth – a high-interest savings account paying .50% isn’t going to cut it.
Investing in the stock market involves more risk, but market investments will outperform regular savings by a longshot in the long term. You can invest on your own through a robo-advisor or by opening an account with a discount brokerage.
9. Get Promoted Where You Work
Sometimes the easiest path to more money is at the job you already have. You can ask for a raise or look for promotional opportunities. Investing in your primary career can pay dividends as you build wealth. As your salary increases, so do your pension contributions, if you have one.
10. Be Patient!
Many people don’t reach their goals in life, not because they didn’t have the right plan, but because they got impatient and gave up too soon. Becoming a millionaire is no different. The steps I’ve outlined above will work, but you need to commit for the long term. Time is the X-factor. The more time you spend on building good spending and savings habits, the more your net worth will grow.
Final Thoughts on How to Get Rich In Canada
There you have it, ten steps to become a millionaire. The list is not exhaustive; there are many other things you can do to help you reach financial independence – the key is to choose a path that works for you and your family. Remember that money is important, but it isn’t everything. If you become a millionaire, but you can’t enjoy the journey, or your relationships suffer, it’s not worth it.