Achieving financial freedom is a goal that every person in Canada should have. Ultimately, financial freedom means you can spend more time doing the things you love and less time working that 9-5.
This leaves many Canadians asking the question, how do I get rich in Canada?
Fortunately for you, you've come to the right article. We will cover many ways to increase your net worth, buy strong assets, build your passive income stream, and ultimately retire rich.
This article will not go over how to get rich "quickly" in Canada
Why? Because it doesn't exist. Although the speculative bubble due to pandemic conditions and economic stimulus made millionaires out of people who timed the purchases of particular assets well, we do not want to use these investors as a benchmark.
Get-rich-quick schemes have a significantly higher chance of leaving you broke than they do of making you rich. If your mindset is to become rich in the next 3 months or even in the next 3 years, you're setting yourself up for disappointment.
Before we think of getting rich in Canada, let's first understand what it means
Being rich means having a great deal of money or assets. However, there are a plethora of factors that go into determining how rich you indeed are.
For one, the cost of living. A person living in a country with low living costs could be considered wealthy. If they move to a country with an extremely high cost of living, like Canada, that title could quickly be erased.
There is also a concern about liquidity. If a Canadian has an extensive investment portfolio of rental properties and their principle residence that's worth multi 7 figures, they're likely "rich" by definition. However, their net worth is less flexible than those with multi 7 figures in cash or the stock market.
Everyone's definition of rich will be different. Some people would completely disregard money in their definition of "being rich." Being rich to some people means having enough assets to comfortably live and spend time with family. Others would like to be able to buy luxury cars, large houses, and recreational vehicles.
If you're looking at how to get rich in Canada, take some time to really consider what being rich means to you. This will allow you to achieve your goal sooner.
Most people do not have the mindset to become rich in Canada
This is the cold, hard truth. Suppose your personal definition of becoming rich in Canada is having an abundance of money. In that case, it requires a significant shift in your mindset.
It is a lot easier for the top 1% of the country to become rich. They have large salaries, often over $500,000 a year, and cannot outspend them unless they're incredibly reckless. Their asset base and net worth continue to compound and grow, while lower income Canadians must chase things like side hustles to increase their income.
For the average Canadian living off a median salary, many like to still live like the 1%. Credit card debt, home equity lines of credit, excessive car payments, and "keeping up with the Joneses" often make it impossible to achieve our goals. Interest expenses erode money we could possibly be investing, which reduces our chances of becoming rich to virtually 0.
Becoming rich in Canada can require an entirely different perspective on money itself. Once that mental switch is flicked, it becomes much more manageable, although it's still tricky.
Let's look at nine ways to get rich in Canada today.
Learn how to become rich in Canada with these ten ways
- Invest in the stock market
- Tax shelter your investments
- Invest in strong, compounding companies
- Start your own business
- Start a side hustle
- Buy real estate
- Reduce your spending
- Invest in startups
- Invest in crypto and Web 3
Invest in the stock market
The fastest path to becoming millionaires for Canadians with average paying salaries is to invest in the stock market. Historically, it has been one of the best wealth-building tools in the world.
However, the difficulty here is people have a hard time with long-term investing. They tend to panic when the markets fall and get too excited when the markets rise. The way to become rich in Canada through the stock market is to buy a basket of individual stocks or an ETF index fund and hold them for the long term.
Once you start actively buying and selling constantly, your chances of becoming rich in Canada significantly decline. The only people that benefit from this type of activity in the stock market are the brokerages.
Tax shelter your investments
The Canadian government gives plenty of opportunities for Canadians to become rich via tax-sheltered investment accounts. Investing in the stock market is a great way to build wealth. However, suppose you're doing it in a taxable investment account. When you make withdrawals or receive dividends, you will be taxed.
So the best way to avoid this and build wealth quicker is to open up a TFSA or RRSP account. These tax-sheltered investment accounts will allow you to compound your investment growth.
To give you an idea of how much a tax-free savings account or an RRSP can help, $70,000 invested in a TFSA earning 8% per year, works out to be $700,000 in 30 years. Taking away 25% of that annual return due to taxes shrinks it to $400,000.
It gets even worse in taxable accounts when we look at fixed-income investments like bonds. This is because things like bonds and GICs do not get the tax credit that many Canadian investors will get when investing in Canadian dividend stocks.
Invest in strong companies that can compound earnings
One of the most popular investment strategies is buying and holding dividend stocks for passive income. Don't get me wrong, this is a great investment strategy and is one I deploy myself for a particular portion of my portfolio.
However, when we look at the standard definition of "rich," there are better ways to go about it in the stock market than buying dividend stocks. This is because dividends are paid with after-tax profits from a corporation and are ultimately money the corporation doesn't have to fuel internal growth.
However, money reinvested back into the company is typically a tax deduction for the corporation. This can fuel significant compounding in share growth for investors, which they can sell in the future and pay capital gains.
Strong capital allocators are challenging to find, so most Canadians will avoid this route and look for dividend stocks in the stock market.
Again, there is absolutely nothing wrong with this. But if you have a bit of a high-risk tolerance, investing in growth stocks can help you become rich in Canada.
An example? Let's look at a popular Canadian compounder in Constellation Software (TSE:CSU). $10,000 invested in the company ten years ago would have you sitting on $170,000, or 32.5% annualized returns.
If this continued for the next decade, your initial $10,000 investment would be worth about 3.7 million dollars.
Start your own business
The road to becoming rich in Canada often goes through entrepreneurs. This is because, much like investing in strong compounders above, investing in your own business tends to pay off exponentially higher than a simple salary.
With a business, the potential for exponential growth is there. Although promotions can be pleasing with a regular job, that explosive growth factor doesn't exist for the most part.
As someone who has built a multi-7-figure business from scratch, it is essential to understand that this method certainly isn't easy and has its pitfalls. A business is prone to lulls in earnings, requiring prudent management with your money to survive and prosper during the good times.
It also often requires more than a full-time job. In the initial startup of my business, and even right now, I often work 60+ hour weeks to continue growing. The self-employed route will not be for everyone. Still, it certainly does have the highest potential for becoming rich in Canada.
Start a side hustle
Suppose you're not looking to go the full-blown self-employed route. In that case, you can always start a smaller side hustle that provides extra income. You can use that income to do one of the first options on this list and invest it in the stock market.
There is plenty of potential side hustles one can look to start, and the best part about it is it can often simply be one of your hobbies. Do you like photography? Buy a camera and begin advertising. Once your portfolio builds enough, you may start working on higher ticket items like weddings.
Are you good in front of a camera? Start a Youtube channel. If it gets large enough, you can open yourself up to a steady stream of advertising income and potentially even video partnerships from companies or social media influencers.
Food delivery, Uber driver, dog-sitter. The possibilities are endless. Even something as small as a side hustle generating $2500 per year post-tax invested in the stock market is 1.4 million dollars after 20 years!
Buy real estate
As a former landlord myself, I can tell you that rental properties have the potential to balloon your wealth. I'd strongly advocate against thinking your primary residence is an investment. I'm speaking on rental properties in this article.
And it's essential to understand that rentals are not without risk.
Real estate has gotten out of control here in Canada. With the Bank of Canada raising interest rates, there could be short-term opportunities in the real estate market as prices no doubt dip.
The unfortunate thing about real estate is that it often requires an initial down payment to start, which many Canadians do not have.
Homeownership as a means to get rich in Canada still exists. However, the path forward is likely much more difficult as I believe this to be abused in the past. With the government increasing interest rates at the fastest pace we've ever witnessed, they could likely put a damper on real estate returns moving forward.
Reduce your spending
This one seems like an odd way to become rich, but it's the reality of the situation for many. Simply reducing spending and tucking the money away in a savings account won't make you rich in Canada, however. You need to not only be cutting your excess spending but invest the surplus cash as well.
In the explanation of the side-hustle method, I mentioned that just $2500 post-tax earned from a secondary income source and making 8% per year in the stock market could result in a whopping $1.4 million after just twenty years.
Most Canadians could likely find a way to trim a couple of hundred dollars in excess spending a month and get to this same result, a 7 figure investment portfolio in 2 decades.
I'm not one to advocate for an ultra penny-pinching mentality to retire earlier. So, I wouldn't expect Canadians to avoid all forms of entertainment to hoard money in hopes of retiring earlier. We need to enjoy our lives.
But, we can get a bit reckless in our spending. See if you are, and if you can conserve and invest that money, you'll be well on your way to millionaire status.
Invest in startups
This is arguably the highest-risk option on this list. However, it certainly has explosive potential and can result in a very early retirement for many. Investing in companies on the ground floor, especially highly successful ones.
Investing in a startup has the potential to provide 10x, 100x, or even 1000x returns on your money. It is because these young companies with promising ideas have the potential for exponential revenue growth. As an early-stage investor, you get a chunk of that pie.
Particular websites make it even easier to get involved with venture capital, as you can invest relatively small amounts of money in early-stage rounds.
Buyer-beware on this front. Just because there is large-scale potential doesn't mean every company has potential. There are a lot of poor-quality startups that lure investors in with flashy ideas and good marketing. Make sure to do your due diligence. If you're not the best at evaluating the potential of businesses, you may want to learn before diving into this.
Invest in cryptocurrency and Web 3
In 2020 and 2021 we saw a massive surge in the popularity of cryptocurrencies. Many believe them to be the future of currency moving forward. And depending on your mindset, you'll agree or disagree with this.
I firmly believe that even if cryptocurrencies don't disrupt many traditional currencies, crypto is here to stay and will become a viable option for transactions in the future. Even particular technologies like NFTs (and no, I'm not talking about the speculative monkey picture craze type NFTs) can potentially disrupt many industries.
Cryptocurrency has undergone a catastrophic collapse. Although many investors view it as high risk, there's no denying there is less risk to buying crypto today than in 2020 or 2021.
Cryptocurrency investments require a high degree of risk tolerance, and they certainly are not for everyone. However, adjusting your crypto exposure inside of your retirement savings plan to fit your overall risk has the potential to pay off exponentially in the future.