Start taking action to build your wealth; here’s how!

CLEVE DeSOUZA

If you’re in your 20s, now is the time to take action to build your wealth. Even during a pandemic, everything is on your side.

Capitalizing on the compounding effect of time is an opportunity that works best to build real wealth. And time is a commodity that we share equally but it cannot be recovered when we miss the moment.

For the most part though, people spend their 20s weaning themselves off their parent’s income. In their early 30s, they realize they need to do something different if they’re going to build wealth in time to retire. Some don’t even come to this realization until they are in their 40s and 50s. By then, though, they’ve lost decades of time and millions of dollars.

Dollars invested wisely quickly add up. Taking small steps builds wealth for later.

Consider the difference it makes to invest in an account that pays compound interest rather than a traditional savings account, which pays only simple interest.

Compound interest means that the interest you earn is added to the principal amount. Going forward, interest is paid on the new principal amount. Simple interest is just what it sounds like – the interest you earn on your money.

Here’s how it plays out. If you put $500 per month into a compounding interest investment with 10% interest rate starting on your 20th birthday, you’ll have $5.2 million in 45 years at retirement. The younger you are, the higher your risk tolerance and the higher your potential returns if you invest wisely.

What most people end up doing is spending during their young days and then trying to invest in their later years. Taking the above example, if you put $500 a month into a compounding interest account with a 10% interest rate on your 30th birthday you end up with $1.9 million in 35 years at your retirement. Yes, starting ten years later cost you over $3 million.

The situation gets even more tragic if you start in your 40s. By then, you’ve most likely racked up debt and have a lower risk tolerance that drives you into more secure investments. You’re probably earning 3% interest. At that rate, your return will not outpace inflation. Taxes on top of that evaporate your investment opportunity while you sleep. Your greatest investment enemy is TIME, so the key is to start as early as possible.

While your money works for you in a compounding interest account, consider spending a little time working to build your income.

The last year was rough. The economy suffered as the world battled a global pandemic. A vaccine became available at the end of 2020. As more people receive the vaccine, the economy is showing significant signs of recovery. The Conference Board of Canada predicts the economy will grow about 1.7% each year for the foreseeable future.

By making some simple changes now, you can speed up your personal economic recovery.

Consider creating a realistic savings plan. You did without restaurant meals and concerts for most of 2020. Create a 2021 budget that continues to preserve your savings ability. Get out of this habit of paying everyone else before you. Once you have budgeted your savings, make it your unwavering commitment to pay yourself first by actually putting that money in your investment account. Make do with the rest, but don’t compromise your wealth-building future.

Be forewarned that you will have fake people and fake institutions at every step of the way to derail your focus. You’ll be offered 0% credit cards, 0% car loans, 0% furniture loans, and so-called emergent expenses. This is the trap for many young people. By the time you’re in your 30s, you’re shackled in debt. This is a death trap so don’t fall for it.