Okay, so you’ve figured out the first part of your financial story arc – earning money. Now what?
Step 2 is, you gotta build some net-worth. How do you do that? There’s five things I always consider when I’m thinking about building net-worth:
- Avoiding Debt
If you can balance these five things out, you’ll be well on your way to building your net-worth. First things first though:
People who have a low income are going to struggle to put away enough money to really grow net-worth. It’s shitty, but that’s the way it is. People who have a high income and save a high percentage of it, are going to be able to grow their net-worth quickly. Income is the best way of building your net-worth, because you can use that income and the amazing mathematics of compounding interest to build your nest egg for retirement.
There’s hundreds of posts explaining the magical power of compounding interest, so I’ll link two of my favourites:
Frugalwoods (of course): Unicorns, Soviets, and Compound Interest: Demystifying Personal Finance Part 1
Mr. Money Mustache: The Shockingly Simple Math Behind Early Retirement
But it all boils down to: higher income + high savings percentage = quicker net-worth growth.
And this is where your career comes into play. Because the money you make and save is directly related to how early you can retire. I, for one, know I’m not going to retire early because of the limited amount of income available in my industry. There’s just not a lot of money in the profession, but I’m okay with that because I would like to do what I do, as long as I can do it.
But to supplement my here-and-there contracts, and my limited income, I’ve turned an eye to side hustles and alternative income streams. For one, I’m writing a novel, the first (good) draft of which I’m hoping to be done by September 1. I’m hoping it’ll bring in some money, but if it doesn’t, at least I can add it to my writing portfolio – which is the same case with this blog. I’ve been writing for 15+ years, but you can’t exactly put your old fanfiction on a resume!
There are lots of different side-hustles, and a few of mine are:
- House / pet sitting
- Retail joe-job
- Hired help (sometimes)
Work with what you love, and what you know. And don’t give up on something just because it doesn’t gain any traction right away – at a certain point you have to let things go (goodbye, photography career), but at the same time, most things take time to cultivate and grow. Have some patience, and make sure you try to innovate before you write anything off. There might not be a need for pet sitters in your neighbourhood, but maybe that just means people need dog walkers instead!
Once you have income, you can use that income to invest. A few different investments (which some may contest):
- Home / Rental Unit
- Stocks, bonds, GICs
There are good investments and bad investments. Good investments serve you and your future goals – bad investments sound like a really good deal, but don’t have high returns in reality. I find that these are pretty subjective as well. For some people, buying a home and renting it out can be a deep dark vortex of expenses. But if you’re a handy-person who can lay tiles, put up drywall, patch and paint, fix plumbing, electrical, and siding – then a house might be the right investment for you.
The stock market is a great way to invest your money as well, and after you’ve maxed out employer-matching savings accounts (if they’re available), then the next step is the stock market. Buying stocks doesn’t have to be crazy, and it might seem intimidating. My toe-dipping method of buying stocks in the stock market may interest you: it’s what got me over my fear of putting my money there.
The third aspect of investing is investing in you. Investing in your future, and getting you to the place where you can make that higher income, or do what it is you need to do to be happy. There are many jobs out there you need an education for – but I, for one, wish I went with a diploma program instead of a four-year BFA undergrad for my profession. I don’t regret going to University, or what I learned there, but the quicker route would have been a diploma program. I suffered from not knowing what I wanted to do, and was influenced by the ‘gotta go to Uni’ culture. Be honest with what you want, how you can get there – and then take the steps to do it!
I’m gonna jump right over inheritance, and say: if you get it, save it! Otherwise, I don’t think it’s something you should be counting on, which brings me to:
I talk about financial realities in my post featuring the North American House Hippos. Consumer debt is on the rise in Canada, and while those people paying it off keep paying it off, and those who don’t have it keep it that way – those people still spending money they don’t have are spending more of it.
Please, please, please don’t spend money you don’t have. Treat your credit card like a debit card. Money can’t make you happy, but it can make you miserable. The best way to avoid (bad) debt is to not go down that path at all.
It’s not gonna happen overnight. It might take 5, 10, 15, 20, or 50 years. But you know what? It is going to happen. If you stay dedicated, if you stay smart, then you’ll watch your net-worth grow year after year. It doesn’t happen in a heartbeat, and it takes a lot of hard work. I’m no where near where I need to be to retire. But that’s okay, because I’m okay with where I am right now.
And remember: you’re not alone.
There’s a slew of blogs out there dedicated to chronicling their journey of Financial Independence, Retiring Early (FIRE). Now, I’m not saying I’ll ever live the life of FIRE, but I do read those that are on their journeys, and try to pick up tips. Seeing what other people are doing is a great way to see what options there are out there. It might or might not work for your particular lifestyle, but I think it’s beneficial to be exposed to as much as you can be. Who knows, put a spin on something that seems a little out of the box, and it might be just what you need! These are some of the blogs that I follow, and I’d recommend them to everyone:
The Lady in the Black
The Frugal Gene
The Frugal Farmer
My Sons Father
We’re All Poor Here
Mr. Money Mustache
The Three Year Experiment
Mustard Seed Money
Millennial Money Diaries