I noticed a phenomenon when it comes to saving and investing. People who have a long education, have high incomes and hold prestigious jobs are not better than everyone else.
It took me a while to figure it out.
It took me a while because it’s hard not to be intimidated by people making hundreds of thousands of dollars a year.
In conversation, these people often use expressions like “ski trip to New Zealand”, “cottage at Mont-Sainte-Anne” and “renovations more expensive than expected”. They travel behind the wheel of vehicles whose parts are “long to order”, and believe that the prices of hotel rooms in Europe this summer are “completely crazy”.
Automatically, my brain tells me, “This person has figured out how money works. She earns it, she spends it, she is rich. »
However, almost every time I have the opportunity to go beyond appearances, I come out with eyes as big as two dollar coins.
I was sure I was dealing with a silver Jedi master. Ultimately, not at all.
A friend told me the other day about a discussion he had had with the head of financing for a major dealership of prestige vehicles in Montreal, whose identity I will not mention.
My friend asked her to describe the typical problematic client she encountered in her office. She smiled, and replied, “You won’t believe me, but my worst clients are often doctors. »
Doctors make so much money, she explained, that they don’t feel the need to plan, and go into massive debt as they want and need.
Children in private college, fancy restaurants, trips to the sun: their credit cards are sometimes so full that there is no room left in their finances for things like the rental of a prestigious vehicle. In her office, some doctors have already been on the verge of tears begging her to approve their loan request, she claimed.
When you earn a lot of money and can afford almost anything you want, it’s easy to believe that you are financially free.
It is an illusion, of course. Being financially free means one thing, and one thing only: being in control of your time.
Many people with high incomes have absolutely no control over their time. They need their next paycheck with the same urgency as someone earning $30,000 a year.
American financial author Ben Carlson recently wrote that people who earn a lot of money often assume that their success in one area will automatically translate into success in another area (such as investing or managing finances).
“Unfortunately, this is not the case,” he wrote. I know many wealthy people who are poor investors because they are too sure of themselves, or because they believe that their level of wealth guarantees them access to secret ways to make money that don’t are accessible only to the rich or famous [un indice : il n’y a pas de secrets]. »
A study published in 2017 in the Canadian Medical Association Journal demonstrated that physicians wanted to stop working at age 60 on average, but that they actually retired almost a decade later, at age 69 on average, among other things because they did not have the financial means to leave before this age.
When our eye sees a big lifestyle, it instantly associates it with wealth. However, a large lifestyle often acts as a brake on enrichment, because the money spent never comes back and cannot multiply for decades in financial investments – investments that our eye does not see.
As my friend Jean-Sébastien Pilotte, author of the blog Le Jeune Retraité recently wrote1 : “The dollar invested in shares of Apple two decades ago has worked hard. He even worked overtime! Enough to buy me a mille-feuille AND a Montreal-Paris plane ticket. »
Jean-Sébastien isn’t joking: a dollar invested in Apple in 2003 is worth $757 today. But $1 invested in an Apple product in 2003 is worth nothing today.
I don’t want to give the impression that people with big incomes don’t have wealth. On the contrary, statistics show us that the higher a person earns, the higher his net worth, which is the sum of his assets minus the sum of his debts.
However, this wealth is often locked up in a retirement plan. The problem with relying on your retirement plan to get rich is that you have to wait until after the age of 65 to take advantage of it. Are you exhausted and want to slow down? Aiming for a lower-paying career? To work part-time ? Without savings, it is impossible: the figures simply do not arrive.
And so, when Monday morning rolls around, you have no choice: the office is waiting for you.
When it comes to wealth, there are no shortcuts. Whether you have a big or a small salary, whether you drive a Land Rover or a Toyota, the only way to get rich is to have a difference between your income and your expenses, and to invest this difference for the grow in the long term.
Everything else is just appearance.
Speaking of investment, the first three months of 2023 are already behind us. In particular, they made us experience the crushing of the Silicon Valley Bank in the United States, and of the giant Credit Suisse in Europe. Yet the S&P 500 index in the United States is up almost 7% since the start of the year, while the NASDAQ index has climbed 16%. The Toronto Stock Exchange is up almost 4%, while international equities have seen growth of almost 6%.
Those who panicked lost. The way forward, again, was to close your eyes, plug your ears, and stay invested. So simple. So difficult.
The question of the week
Have you ever made expenses that you regret today?