I am not kidding when I say I have a secret system that helps you achieve greater wealth. I have been developing it for years and I am now ready to share it with you. If you have been reading websites like SeekingAlpha and thestreet.com or paying for the hottest stock picks from the gurus of investing you can stop right now.
In memory of the great Jack Bogle, founder of Vanguard, I am going to give away my secret to you, for free. Are you ready?
Save. More. Money.
Yep. That is THE SECRET. I know you were expecting me to tell you it involved some moon-cycle periodic trend following overly complex mumbo-jumbo. The stark reality is that NOT spending every last penny is the best way achieve greater wealth for yourself. Spending every last penny is a fantastic way to make greater wealth for other people.
Here is the truth. Most of us in Canada are failing at this simple system. Stats Canada regularly updates the savings rate of Canadians. In December they told us we were at the lowest savings rate in the past 10 years. A paltry 0.8% of income remained after spending! Over the past year, it averaged only 1.4% which is terrible. It does not matter what you earned from your portfolio if you did not add to it from saving.
Savings is the key because it does two important things for you and your family. First it gives you a life long course of living within your means. If you only earned X and you spent X- 5% for 40+ years you have built the necessary skills to do the same in retirement. Second, it now gives you the chance to use that savings to grow and compound into a bigger pile of savings in the future. That is investing.
Morgan Housel wrote this week about how saving and investing actually work together, in harmony. If you are a good saver, you don’t need massive returns on your investments to make for a comfortable retirement. You have been saving all your life which is another way of saying you have made your lifestyle efficient all of your life. That efficiency does not disappear when you stop working and are drawing on your savings. It sticks with you because it is ingrained in your psyche.
Based on an Ontario Securities Commission survey from 2016, almost 40% of Canadians feel they are unprepared for retirement. With a savings rate that has declined further over the past 2 years, I am willing to bet that figure will be even higher now. A serious concern not just for the people but also the country.
We spend a lot of time worrying about the returns on our savings when we really need to spend more time worrying about how much we are saving. That is my fool-proof and guaranteed way to make you richer. I will end with this from Morgan’s post:
