Achieving financial freedom is a goal many Canadian millennials aspire to, but navigating the path requires careful planning and informed decisions. That’s why we’re here to help. So without further ado, let’s get into five steps Canadian millennials can take to achieve that financial freedom.
Build a foundation
The first step to financial freedom is to create an emergency fund. Aim to save three to six months’ worth of living expenses. According to the Financial Consumer Agency of Canada, having an emergency fund can help avoid high-interest debt during unforeseen circumstances like job loss or medical emergencies.
From there, prioritize paying off high-interest debt, such as credit cards, which often have interest rates exceeding 19%. The Canadian Financial Capability Survey (2019) indicated that 29% of Canadians carry a balance on their credit cards each month, highlighting the need to tackle high-interest debt to improve financial stability.
Invest in a diversified portfolio
Maximize contributions to Tax-Free Savings Accounts (TFSAs) and Registered Retirement Savings Plans (RRSPs). For 2023, the TFSA contribution limit is $6,500. Investments grow tax-free in TFSAs, while RRSP contributions are tax-deductible and grow tax-deferred.
Consider stable, dividend-paying stocks in essential sectors. For example, Fortis Inc. (TSX:FTS) in the utilities sector provides a steady dividend yield of around 3.8% and has a strong track record of dividend growth. Telus Corporation (TSX:T), in the telecommunications sector, offers a dividend yield of approximately 5.2%, making it an attractive choice for income-focused investors.
For diversified exposure, consider ETFs like the iShares S&P/TSX 60 Index ETF (TSX:XIU), which includes 60 of the largest companies on the TSX, and the Vanguard FTSE Canada All Cap Index ETF (TSX:VCN), offering broad exposure to the Canadian equity market.
Prioritize long term
Now that you have some investments, establish long-term goals such as buying a home, saving for children’s education, or early retirement. Having specific goals helps in creating a focused financial plan. According to a survey by Scotiabank, 68% of Canadians believe setting financial goals is crucial to achieving financial success.
Furthermore, periodically review your investment portfolio to ensure it aligns with your goals and risk tolerance. Adjust asset allocation as needed, especially as you approach significant milestones.
Educate
Millennials should also invest in education and skill development to increase earnings potential. According to Statistics Canada, individuals with a post-secondary education earn significantly higher incomes compared to those with only a high school diploma.
Explore opportunities for side hustles or starting a small business. The gig economy offers numerous opportunities, from freelance work to online businesses. A report by the Brookfield Institute for Innovation + Entrepreneurship highlights that nearly 40% of Canadian workers engage in freelance work.
Start planning for that early retirement!
It’s never too early. Start planning for retirement early to take advantage of compounding returns. Aim to contribute regularly to RRSPs and TFSAs. According to Fidelity Canada, starting to save in your 20s can significantly increase retirement savings compared to starting later in life.
Real Estate Investment Trusts (REITs) can provide stable income and diversification. For instance, Slate Grocery REIT (TSX:SGR.UN) offers a high dividend yield of 10.7%, providing a steady income stream. Additionally, Choice Properties REIT (TSX:CHP.UN), with a yield of around 5.3%, offers exposure to the retail and industrial real estate sectors.
Bottom line
Achieving financial freedom as a Canadian millennial involves building a solid financial foundation, investing wisely, setting long-term goals, continuously improving skills, and planning for retirement early. By following these steps and utilizing the recommended stocks and ETFs, millennials can create a robust financial plan that paves the way for a secure and prosperous future.
