The fall (and rise) of the Real Estate Market

In these ever interesting times, I find it fascinating to watch the goings on in the real estate market. Over the past several months (if not years) there have been lots of pundits and moon lighting real estate “experts” predicting the collapse of the Canadian real estate market. In particularly in the two hottest Canadian markets Toronto and Vancouver.

In July the finance minister Jim Flaherty yet again changed the laws around government backed mortgages (think CMHC) yet again. These changes were designed to cool the market a little bit and help slow the decent many Canadians are taking down the debt highway. They will work in my opinion but not necessarily quite the way people expect.

As I wrote about previously http://chuckbrady.ca/?p=143 the Canadian real estate market in many ways is quite predictable. (yes I know stuff happens which can temporarily through it for a loop) Despite the high profile of some real estate investors, most purchases (96%) are home owners looking for a place to live. These buys generally do not really care what the sticker price of a property is, they simply pay attention to the monthly payment, aka “what can I afford”.

One of the most high profile changes made by Flaherty was to move the maximum amortization period (only on government backed mortgages) down to 25 years from 30 where it was before. This little move has the same effect as a 10% price reduction to the market. Let me explain:

In June, Joe and Sally home buyers go to their bank looking for a mortgage approval to go house shopping with and Mr. Banker says ok you can spend up to $1800 per month. Based on average prevailing rates of 3.5% at the time and an amortization of 30 years Joe and Sally could go out and spend $400,000 (monthly payment comes in at $1790). Come July the changes are announced, Joe and Sally still make the same amount of money so Mr. Banker says they can still spend the same each month ($1790) but since the amortization period is now 25 years they can only spend $358,600. This equates to a price reduction of a little more than 10%.

This makes the government happier as now Joe and Sally are building in more of an equity buffer each month and not going quite so fast down the debt highway. Though now Joe and Sally look at what is available to them to purchase and they do not quite like what they see so they sit on the sidelines and watch. As more customers begin to sit out for a while the market quietly adjusts down to what people are able and willing to spend.

The simple fact is that since 96% of the real estate market is home owners, they will dictate what the prices are. Over time the market has to adjust accordingly. Nothing happens over night and there are events which can temporarily through the market off course but the fundamentals always return.

So yes, the market is going down probably in the ballpark of 10% but no it is not the end of the world. It really means very little at the end of the day. As interest rates slowly begin to climb (it is not an if but a when, though possibly not till 2014) the rising rates will have a similar effect on the market but it will make very little difference if you buy today or wait a year. If you of the belief you should wait to buy because you think the prices are going to fall, all you are really doing is losing a year of building equity. Sure maybe you can wait two more years and save 10% on the purchase price. Over time the money you saved on the price will be eaten up by the added interest you will be paying. Find something you love and can afford and just get on with it already.

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Opportunity knocks with new transit projects

In the never ending cycle of the real estate market, there always seems to be patterns emerging. When you are able to study these patterns and learn from them you will see opportunity where others see only bad things. I believe in many Canadian cities right now opportunity is knocking quite loudly for real estate investors and all one really needs to do is open up the door.

 

One such opportunity is the infrastructure spending that governments of all levels are partaking in. The most notable area of this in my opinion right now is through the transit expansion. In the Vancouver area construction is about to begin on the sky-train extension known as the Evergreen Line. In Edmonton they are building out the light rail (LRT) and Toronto continues to talk of subway expansion.

 

So how exactly does one go about taking advantage of this opportunity? Well, for starters, you should begin by looking at the rule of 800 meters. Simply put if you were to put a dot on a city map of the location of an upcoming transit station you would then draw a circle around that dot with the radius being 800 meters. This will give you a focus area that will provide an increase in property value and market rent of about 10-15% higher than comparable properties outside this circle. It is important to note this increase in value will take place a few months after the project has been completed.

 

Now, let’s get back to the true opportunity that is presenting itself right now. I am going to use the Evergreen Line as the running example in this article. Construction for this project has begun now, early in 2012 and is scheduled for completion in 2016. Right around the time construction is announced and starts people get excited and a temporary bump in value (or asking price) will take place. Then as construction gets under way, noise will pick up, roads will be closed or congested and people begin to get irritated, thus values will reduce. AKA, opportunity is knocking. The beauty of this is not only will prices recover they will jump due to the value increases of the 800 meter rule.

 

Another interesting phenomenon is that often times city planning departments will run new transit projects through rougher neighbourhoods they want to rejuvenate. This is done for several reasons:

 

  1. Any land the city needs to acquire can be done so more economically.
  2. Neighbourhoods which have been run down have land developers can pick up
  3. Rezoning in rougher neighbourhoods can be easier as the residents do not always have enough money or lobbying power to cause a fuss.
  4. Long term project completions can allow developers a chance to build large scale projects that can complete around the same time as the transit projects
  5. Increases in population density and property values means more tax dollars for the city. (property tax is one of the few methods of collecting money a city has)

 

So this means you have an opportunity to pick up property at a discount, in an area where prices are already lower than those around it. Moreover, you know that once the projects are complete the property and the neighbourhood are going to see a significant INCREASE in market value and potential rent. A prime example of this was Yaletown in Vancouver. Once an industrial wasteland where no one wanted to be, now it has some of the highest property values in the world.

 

So there is one neighbourhood I believe has enormous potential for the next 36 months or so and that is Burquitlam (I agree it is a silly name). This area is the site for one of the new sky train stations, is full of older single family homes, the city has been approving mass rezoning for the area and a number of developers are about to break ground on new buildings. There is an opportunity to find decent properties at a reasonable price, gain positive cash-flow in the short term and have a big boost in the medium term. There are no guarantees in life but some good research and a little action you can dramatically increase your odds of success.

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Leverage your real estate, bank the cash-flow!

One of the strategies I feel is most important for up and coming real estate investors is what I refer to as leverage your real estate and bank your cash-flow. Many famous books have been written over the years (The Richest Man in Babylon & The Wealthy Barber come first to mind) talking about the concept of paying yourself first. I feel as though real estate investing should be no different, let me explain.

I am a firm believer in using other people’s money (mainly banks) to buy more and more real estate. There is no shortage of available cash out there to fund profitable real estate deals. For clarification sake please notice that I did use the word PROFITABLE as it is key here. You can be leveraged to the hilt but as long as you remain profitable more money is always available to you.

Now, since your deals are profitable there is an excess cash-flow coming off of your properties each and every month. The key to long term wealth and risk mitigation here is to bank (or invest in stocks, bonds, mutual fund, gold etc.) a portion of that money each and EVERY month. The second and perhaps most important part of this strategy is to NEVER use any of that money in any future real estate deal. Once the cash comes home it should stay there. There will be plenty of money, aka equity, being freed up for future real estate deals. This approach helps you diversify your portfolio and ensures you always have cash in the bank. Having all of your money tied up in real estate is not a fun place to be.

Now back to mitigating your risk; interest rates are currently at all time lows. Variable rates in Canada are around 2.2% and 5 year fixed rates are around 3.69%. They are however not going to be this low forever. There is a temptation to get in on deals that seem profitable now but should rates rise by even 1% the profit would evaporate and it would become an anchor. So what you want to do is calculate your profitability on a high rate ( I would recommend 5-6%) thus ensuring you have a good buffer. Secondly I would recommend you take the variable rate but make the payment of the fixed rate.

This approach does several things for you:

  1. It takes away the temptation of getting in over your head by paying only the minimum of the current ultra low variable rate.

  2. Prepares you and takes the shock out of interest rates rising as your payment now wont change for years.

  3. Dramatically reduces your amortization period and thus supercharges the speed at which you are building equity which can be utilize in your next deal.

Let me create a realistic example of how this type of scenario could play out for you using real numbers.

Your purchase a triplex for $650,000, your put 20% down ($130,000) thus leaving you with $520,000 left to be mortgaged. Each suite is rented for $1200 a month thus giving you a monthly income of $3600. The monthly expenses (taxes, utilities, insurance etc.) for the building are say $500. You have a net income of $3100.

At the current variable rate of 2.2% you could be tempted by the low monthly mortgage payment of $1971 (30 year amortization) but avoid temptation. Take the variable rate mortgage but increase your payment to what it would be at 3.69% ( $2382 per month thus paying an additional $411 directly to the principle each and every month). Also note that the payment at 6% APR would be $3093 per month thus making this a safe deal for you (again looking to mitigate risk).

You now are left with $718 of cash-flow each and every month. Going back to what I was saying earlier make sure you bank a portion of this monthly cash-flow (10% minimum but more is always better) and never allow it to find its way back into the real estate market. Take another portion of it and set it aside in your emergency fund as unexpected expenses will always come up. Now you are left with a portion to do with as you please and for the most part your risk has been mitigated, your cash (or investment accounts) accounts are growing as is your equity.

I read once that money in real estate is made when you buy, not when you sell. I whole heartedly believe this to be the case, if you follow the steps I outlined above and buy only profitable properties it really is tough to lose money.

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Shopping for deals on a new house

A friend of mine recently added a new addition to his family and he and his wife decided their current condo was not big enough for the growing family. They wanted to upgrade to a house and like many people who have watch one of those infomercials on late night TV he thought perhaps there were deals to be had in foreclosures sales. Looking for advise he game me a call. Given how common this situation is I thought I would share my advise with everyone.

Let me start by saying foreclosure sales in Canada are not usually what people think. The banks making the sales know full well what the real estate market is doing and will not forgo profit to make a quick sale. The process you have to go through in order to make the deal is often very cumbersome and time consuming as well. It is not the bargain bin type shopping a lot of people are looking for.

There is however a relatively simple way to bargain shop for real estate which can accomplished by gathering a small amount of intelligence any good realtor can get for you on places you are interested in.

The first thing to look for is when the current owner purchased the property and for how much. You are looking for owners who have had the property for a number of years and purchased it when the market was priced much lower than it is now. People becoming very emotional when it comes to selling their home and most are really uncomfortable selling for less than they paid. This is easy to avoid by dealing only with longer terms owners.

The second thing to look for is what mortgages have been registered against the property. There is a record kept of every transaction in which the property is used as collateral. You have done your homework in step one and found a house on the market for $600,000 in which the owner purchased it in 1995 for a mere $200,000 you are getting excited. However, if you learn the property was re-financed in 2009 for $550,000 so the owner could invest in a hot stock tip or a lakeside cabin you are not going to be able to negotiate the bargain you are looking for. Most people are completely unable to sell a property for less than they owe the bank (the bank can veto the sales) so do not even bother trying. Knowing all of the transactions will allow to you get a pretty accurate idea of how much equity the current owner has in the property. The more equity that exists the lower you can offer with a chance it will be accepted.

Once you have identified houses with a long term owner, who purchased the house for far less than the current market value and you know he has not used it as an ATM to refinance and take out money you are close to the bargain you are looking for. Now you want to try and uncover what is the motivation for selling. Perhaps the owner has been transferred for work and needs a quick sale, perhaps the couple is going through a divorce. With a little digging you can uncover the motivation and thus offer terms that appeal to the seller. You can often get away with paying far less than market value by simply offering to close quickly. Offer to close on the transaction the same month, the lure of fast cash can often get people to simply want the deal over with and take far less than they would get if they waited. We live in a society of instant gratification so use that to your advantage.

Finally with all this intelligence in hand find a realtor who is aggressive and willing to write multiple offers and do the homework for you. Some sellers will take offence to you making a low offer, accept this and move on. To use a fishing analogy, the more lines you have in the water the more likely you are to catch a fish. It also gives you leverage on the sellers. If they know your offer may go away because you are also bidding on other places they may just take the offer right away to lock your cash down.

Let me close by giving you one simple little piece of perspective. If you have a standard 30 year mortgage for every $10,000 you save off the purchase price you are saving yourself $50 per month for 30 years. I am sure you can think of better things to do with your money than add it to the bottom line of our already profitable banks. There are deals to be had in any market if you know some of the factors to look for.

Cheers,

Chuck

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The secret truth about the Canadian real estate market

One of the things that continues to fascinate me is the talk of a housing bubble in Canada. With both the Bank of Canada and our finance minister Jim Flaherty foretelling of increasing interest rates on the horizon there is much speculation going on in regards to the sale price of houses. I find one of the most over-looked facts is just how the market determines what a house (or condo) will sell for.

It has been my observation that the actual selling price very rarely factors in to the decision making process for most people. Given it is almost unheard of for someone to purchase a home in cash (without taking out a mortgage) the focus on the purchase price gives way to the focus on the actual monthly cost of ownership.

Through the last decade or so housing prices have changed pretty dramatically though the average take home pay of Canadians has not changed all that much. I think if you look at the overall trends the amount of money being shelled out each month for home ownership has not actually changed all that much. What we have seen though have been significant decreases in interest rates combined with (for a time) extended amortization periods and reduced down payments. It was not that long ago where you could get a mortgage for around 2% interest and a 40 year amortization.

So if you take the average family who has say for example $2000 per month to spend on housing (mortgage, taxes, strata fees, maintenance ect…). In the year 2000 maybe that gave them the ability to spend $250,000 on a house or condo (this is an estimate for illustrative purposes only). Fast forward to 2009 when the same $2000 per month would give them the ability to spend say $400,000 on a house or condo. In both cases they were probably shopping for the same house or condo in the same neighbourhood. Yes the purchase price changed pretty dramatically, but it terms of what it costs you every month and what you end up with in the end it is all about the same.

Do I think the purchase price of houses are going to drop in the near future? The answer is almost certainly yes.

Do I think it is the doom and gloom some so called experts are predicting? No, I really think that is unlikely.

If you are worried about the impact of interests rates changing you still have time to lock in. The only people I see really at risk of being severely impacted by this are speculators who are in the flipping game (one very few people should be in) or those who are looking to get out of the home market all together.

In closing however I do find it amusing that the one thing people seem to pay attention to the most (purchase price) is often the item that has the least effect on them long term.

Purchase something for $400,000 at 3% APR and a 30 amortization will cost you about $1900 per month and total cost including interest by the time it is paid off will be about $568,000.

Purchase the same place for $300,000 at 6% APR (our historical average) it will cost you the same $1900 per month and total cost including interest will be about $576,000.

Which scenario is better? I will let you be the judge of that one!

Cheers,

Chuck

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Lessons from Babylon- The way to wealth

I recently discovered that in my never ending quest for knowledge I had somehow neglected to read one of the all time classic books “The Richest Man in Babylon” by George S. Classon. It was to my great delight that I discovered it under the Christmas tree this year. I was blown away by how some ever so simple principles have stood the test of time and are as true today as they were thousands of years ago when Babylon was the city of cities.

The fundamental principles of wealth laid out in the book are ones everyone should be aware of and use day to day. Many of them have been written about time and time again with each new author adding his or her unique twist to it but the principles remain unchanged. I wanted to take the opportunity to share with you the secret to success in its simplest form.

Take the money you earn and break it down three ways.

  1. 70% of your earnings are for your living expenses

  2. 20% of your earnings are to be used to repay your debts

  3. 10% of your earnings are yours to keep.

Following these three steps for the rest of your life will ensure a rich and prosperous life regardless of your chosen profession. Now let me elaborate on these just a bit.

Rule #1: Live on 70% of your income

In a world of easily accessible credit, the internet and the home shopping channel this is not always as easy as it seems. Living expenses include your rent or mortgage, food, clothing, TV service, Internet service, cell phones, restaurants, cars, jewelry and anything else along these lines you can think of. Today too many people are living well beyond their means and it is catching up to us. 2009 was a devastating year for the financial situation of many people. Those who have been hurt the most are the ones who are living well beyond their means.

The time has come to reign in your spending and limit it to 70% of what you take home each month. This may mean canceling cable for a while. Perhaps you need to ask yourself if you really NEED to access Facebook from your Iphone. David Bach has come up with a great concept he calls the Late Factor. It sums up our wasteful spending pretty well. Read any of David’s books to learn more about what I mean. For today however simply keep your living expenses within 70% of your income and your financial success can be guaranteed.

Rule #2: Use 20% of your income to pay off your debts

Let’s face it, most of us today have debt we have accumulated over the years. True financial freedom comes from paying it all off. Simply take 20% of every dollar you earn moving forward and apply it to your past transgressions and before you know it they will be gone. The trick here is to fight the urge to accumulate new debts caused by violating Rule #1. The amount of money most of us pay in interest each month is an astronomical figure which is preventing most people from becoming truly wealthy. So discipline yourself to hold steadfast to Rule #2 and your financial picture will begin to improve rapidly.

Rule #3: Keep 10% of every dollar you earn for yourself

This is the rule most of us overlook or claim is just too hard to do; however, it is the single most important step in the creation of wealth and financial security. Let me clarify something right off, saving 10% does NOT mean putting it into a jar and then when the jar is full buying a big screen TV. I mean this is to be set aside to create a nest egg for when you are old and grey. This is your retirment fund. This money is not to be touched, not to be spent. It is to be wisely invested and added to constantly.

An often quoted portion of the bible states “For whoever has, to him more shall be given; and whoever does not have, even what he has shall be taken away from him.” (this passage does vary a little from version to version but the message remains the same) In short as soon as you learn to accumulate wealth more of it will begin to find you. Living your life with a lack mentality means you will continually struggle. Learn to accumulate and save and more will be given to you.

I know many of you are living pay cheque to pay cheque and the notion of taking away even 10% of that seems ridiculous and impossible. However, to you I say I bet you are wasting at least 10% on vises like booze, cigarrettes, movies, restaurants, Starbucks coffee, cell phones, cable TV. I could go on but I think you get my point. It comes down to making a decision as to what is more important short term gratification or long term security.

For thousands and thousand of years these 3 simple rules have proven to be successful. Most true rags to riches stories can be traced to following these rules even if it was accidental. Follow them fervently and you will be rewarded. Choose not to follow them life will go on very much as it has for you. In closing I ask the you the question, is my life right now the life I want? If your answer is no perhaps it is time to change a thing or two.

Cheers,

Chuck

PS. To learn more about accumulation I have a post on the law of abundance you may like. http://chuckbrady.ca/?p=77

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Investment Real Estate- The Numbers

by Barry Lenson

Lets’ face facts. Only a small percentage of real estate ventures generate as much profit as the investors were hoping for. And many investments actually lose money.

When ventures lose money, the problem is usually that the investors failed to work the numbers carefully. And working the numbers is not all that difficult. Let’s take a closer look. 
 

First, consider this investment that lost money:

  • An investor named Joan bought a pre-foreclosure property for $180,000 from a seller who said, “Houses like this in this neighborhood should sell for $300,000.” So Joan spent another $50,000 on renovations, then discovered she could sell the house for only $225,000 in the current market. Her mistake? She believed an unsubstantiated statement from the seller (“Houses like this in this neighborhood should sell for $300,000”) instead of studying comparable sales in the current market. As a result, she spent too much on renovations – and lost money.

Second, consider this investment that made money:

  •  Before starting serious negotiations to buy a condominium that was for sale, Jim did a thorough investigation of comparable sales in the complex and the wider area. He learned that the unit he was considering would sell for about $250,000 in the current market. He then toured the unit and estimated that he would have to spend $85,000 to fix the place up before he could sell it. Then he added in a buffer of another $15,000 for taxes and other unexpected costs. Next, he offered the seller $150,000 (the projected selling $250,000 cost minus his $100,000 estimated expenses and buffer). When the seller protested and asked for $225,000, Jim replied, “I am offering you $150,000 because that is what the property is worth to me.” In a month, the seller called and accepted Jim’s offer of $150,000. The deal was done and when the renovations were completed, Jim sold the property for $275,000. After all was said and done, he had netted more than $40,000 on his investment. Success!

Those examples prove that a successful investor only needs to add and subtract! But here is more advice to keep in mind:

  •  Always start out with a realistic dollar figure of a property’s value on the current market. How much will it really sell for, or command as a rental? This your baseline figure. All your other figures must be weighed against it, so keep it firmly in mind. Don’t daydream here, and don’t believe what a seller or real estate agent tells you. Look at comparable properties in the area – and remember to consider only recent data, not sales figures from two years ago.
     
  • Set a firm budget for your improvements, and stick to it. Even if you want to put in ceramic tile floors, put in linoleum tile instead if the numbers don’t work. Or put sealant on the driveway instead of repaving it. You don’t have to do everything on the cheap, but you do have to refuse to spend more money than you can recoup from your final sale or rental. Don’t get carried away. Your budget must be your final yardstick in every decision you make.
     
  • Do a realistic estimate of taxes and other recurring expenses, like utilities, association fees for condos, etc. Estimate how much they will run while you fix up the property – and how much they will cost if it takes you six months or a year to sell the property after you have fixed it up. Don’t fudge these expenses, work them into your budget. They are not going to go away.

Sticking to this advice requires discipline and self-control. Yet consider our Chairman, Donald J. Trump. He didn’t get where he is today by overspending on his development projects. He bargained hard to pay the right price, then bargained hard to keep renovation expenses within budget. If you follow his example, one day you too can follow in his success.

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World’s Largest Yoga Class

Just a reminder that this event is in Vancouver next weekend being put on by a good friend of mine Ryan Cogswell. The details are as follows:

Come be a part of a World Record. In a fundraising effort to help keep kids active, the Vancouver Fitness Guide is sponsoring an event attempting to enter Vancouver into the Guiness Book of Worlds Records for having the most people doing yoga in one place at the same time. Included with each ticket will be an event beach towel and swag bag filled with event give aways. Proceeds from the event will be donated to Athletics 4 Kids www.a4k.ca.

Sunday, Aug 23, 2009 11:00 AM PDT (10:00 AM Doors)
at Thunderbird Stadium, UBC tickets are available at www.a4k.ca

Cheers,

Chuck

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The Definition of Wealth

The Definition of Wealth
By: Brian Tracy

If you want to be wealthy, you must understand what wealth is. Here is the best definition of wealth you will ever find. Wealth is “Cash flow from other sources.”

Make Your Money Work For You
What this means is that, you are not wealthy just because you earn a lot of money. You are only wealthy when your money works for you. To become wealthy, your main job is to acquire money and then put it to work making more money for you.

Add Value Continually
The key to creating wealth is simple. It is called “adding value.” Successful people are those who are always looking for ways to add value in some way to a person, a company, a product or a service.

Do It Faster
Here is an example of adding value: Domino’s Pizza. The founders of Domino’s Pizza took a common food, offered by thousands of little restaurants and added a value to the pizza by delivering it more rapidly than anyone else. The added value of speed enabled Domino’s to create a billion dollar empire and made the founder of Domino’s, Tom Monahan, one of the richest men in the world.

Buy It Cheaper Somewhere Else
Another way to add value is to buy something in one place at one price and then make it available in another place for another price. For example, buying a product or service manufactured in Europe or Asia, importing it to the United States and making it available to people to whom it was not available before, is a way of adding value for which you can charge a higher price.

Improve the Life or Work of Others
All manufacturing and marketing is based on this principle of added value. All importation and distribution aims to add value. Performing a service that enhances the life or work of another person adds value. A dentist who takes away pain is adding value. An accountant who saves a client money on taxes is adding or actually creating value. A salesperson who introduces a new product or service to a customer that helps that customer in some way is adding value. All financial success, especially business success, is based on adding value. It is based on the old saying, “Find a need and fill it.”

Combine and Recombine the Elements of Value
All successful business is based on someone bringing together the factors of production, such as labor, capital, raw materials and management, and creating a product or service that a customer will pay a price for that is in excess of the cost of producing it.

How All Fortunes Are Made
Adding value is the way that all fortunes are made. Whenever you see an opportunity to give people what they want at a price greater than it costs you to produce that product or service, you see an opportunity to make a profit, build a business and begin moving toward financial success. Almost any business or occupation can make you financially independent if you can find a way to add enough value.

Action Exercises
Now, here are two actions you can take immediately to add more value to your time and activities:

First, take the time to be absolutely clear about what it is that people want and need to improve their lives and work. The more clear you are about their real needs, the easier it is for you to satisfy them at a higher level.

Second, look for ways to add value to what you are doing every day in every way. Never be satisfied with the status quo. One small idea to add value can be the starting point of a great fortune.

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Buck the Trend, Retire with Money

While doing some of my regular reading today in Canadian Business magazine I came across an article talking about the health of our retirement system here is Canada and I was quite alarmed by the numbers they laid out. Fewer than 30% of us make any annual contribution to the government retirement program RRSP. 7 out of 10 of us are putting nothing away each year for our golden years. Of those who are saving the average is a paltry $2780 per year or $231 per month. Compared to what we waste on non- essentials each month this is peanuts.

 I found these numbers to be extremely frightening. Though I knew we were in dire straights seeing the actual numbers in black and white print in front of my face almost took my breath away. At what point did we develop the mindset of thinking someone else is responsible to take care of us when we get old? When did it become acceptable to procrastinate for our entire lives?

 It has been well documented that only about 5% of the population as a whole will ever save enough money to retire comfortably and it is pretty obvious why. The state we find ourselves in has nothing to do with our annual income, nothing to do with our formal education. It has everything to do with our mental conditioning and state of mind.

 I am reminded of Parkinson’s Law which was developed by English writer C. Northcote Parkinson many years ago and it explains why most people retire poor. This law says that, no matter how much money people earn, they tend to spend the entire amount and a little bit more. Their expenses rise in lockstep with their earnings. But somehow, they seem to need every single penny to maintain their current lifestyles. No matter how much they make, there never seems to be enough. It is a downward spiral caused by poor mental programing.

 The only way to escape this spiral is to make a choice, make a decision to become successful and buck the social trend. I am amazed at how someone working minimum wage can never find money to put aside for retirement but can always scrape together money for beer, cigarettes or pizza. There seems to be a strong desire for us to keep up with the Jones and yet the Jones are ending up broke in the end so why try and be like them?

 Want a better approach you can implement easily? If you do nothing else but take 50% of any raise you receive and save that each month I guarantee you will retire a millionaire. Albert Einstein said the most powerful force in the world is that of compound interest. Get it working for you and a million dollars is within your grasp. All you are doing is saving half of any “New Money”, nothing else is changing. We all get raises along the way, the question becomes is it raising you up or keeping you down?

 The only thing standing between you and a comfortable retirement is yourself and your poor mental programming. Still want to be like the Jones? What is it going to cost you in the end? Your dignity? Your self respect? Perhaps your marriage? Finance worries is the single biggest cause of divorce in our society. Are you one of the 70% who is not saving anything? Perhaps it is time to change your thought patterns because remember. If you always do what you have always done the results you achieve will remain consistent. Change your thoughts, change your approach and you can buck the trend and be in the small percentile who can actually enjoy retirement.

 

 

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