Wealth Habit: Invest the Bargain
Today we are going to cover a powerful wealth building habit that can drastically improve your net worth. This habit can make your monthly budget go further, increase the value of your investments, and reduce your taxable income. This habit is called: “Invest the Bargain”. It starts with creating a bargain, investing the money you saved, and if you invest it in a tax sheltered retirement fund, you will reduce your taxable income.
Create the Bargain
The Bargain Mindset
- Can we find this used?
- What about last year’s model?
- Is there an online discount retailer?
- Can I find it refurbished?
- Is there a time of year when the product or service is offered for less?
- Can I do or make this myself?
- If I agree to write a review can I have it for free?
- Talk with your friends or family on what they do or if they know where to get it cheaper
Once we create this savings or “profit” we feel an immediate sense of satisfaction knowing we didn’t overpay and we got a great deal. Now of course this is much easier said than done; but once you get a taste of this you will abhor paying full price again. Maybe start with small things like going to a movie on cheap night instead of Friday night and investing the difference after the show. Combine it with bringing your own popcorn for a double savings! Trust me – once you see the investment account growing you’ll get more motivated and you start hunting for even more bargains.
A Personal Example
Invest the Bargain
I leave the store and get back into my vehicle.
I open my phone and load the WealthSimple app and begin the simple process to deposit $12
Before I hit submit I learn that this $12 will turn into $54 over the next 29 years.
This is powerful stuff – I just generated $12 from creating a bargin and it will grow into 4.5 times more money
I love how this tool helps me keep a long term investing perspective and reminds me of the time value of money.
What is even more incredbile is WealthSimple will take the $12.00 and invest it according to my asset allocation and not charge me any trading commissions. In my case I use their growth portfolio. This is how the $12.00 will be invested:
Few points to know:
- Automatic — This investment of $12.00 and the purchasing of these ETFs is done automatically for me within 1 business day after their receive the money from me. I don’t do any buying or selling of the ETFs.
- No Commissions – Even though I’m going to buy 8 ETFs there are no trading commissions. The entire value of $12.00 is invested for me.
- Partial Shares – WealthSimple buys partial shares on my behalf so I can invest even the smallest amounts and have it correctly allocated across my portfolio.
If you’re wanting to try WealthSimple use this link and we will both get $10,000 managed for free.
Learn more about how we can use this investing tool as a key pillar in our Four Pillars for Investing Success article
While the Wealth Habit: Invest the Bargain isn’t a revolutionary idea, the fresh twist today is you can invest the small amounts you save immediately. With these discount, free, or robo-brokerages you can invest small amounts multiple times a week and get that money working now.
Reduce Your Taxes
This Wealth Habit: Invest the Bargain, also includes a component of tax reduction which can provide three amplifications or enhancements.
- It can reduce your taxable income for the current year and immediately provide a 20 – 45% return based on your marginal tax rate
- If you invest the tax return you receive, it can provide benefits the following year too.
- Canadians: Investing in your RRSP provides a taxable income reduction – not a credit. Which means it lowers your total income for the year. Many government programs, such as CCB (Child Care Benefit), are based on your taxable income. The lower your taxable income the more CCB and other benefits you might receive.
- Use this calculator to determine your benefits – play with different numbers to see the impacts of lowering your taxable income.
Wealth Habit: Invest the Bargain — Example
Let’s have some fun and see just how far we can take this. This example is extreme to show us just how powerful this habit is. But just because it’s extreme doesn’t mean its not possible. In fact it just requires a little discipline and determination.
Familiarize yourself with the listed assumptions we’ll be running with today. Through the savvy efforts of this household both spouses are able to bargain out an extra $1,000 each. They invest this in their RRSPs and are able to repeat this habit for two years in a row. Mentally add this up and we have $2,000 a year for 2 years so our total investment is $4,000. Now its important to note they aren’t buckling down and slashing their budgets. They are being creative, savvy, and smart. They’re getting the equivalent products and services but doing it for less money and pocketing the difference.
Baseline
In our example this household makes $104,000 gross income, pays $16,770 in tax and receives a CCB benefit of $4,409.28 each year.
First Year Results
They invested $1000 each to their RRSPs which reduces their taxable household income down to $102,000. But because they were taxed as though they were making $104,000 they are owed a refund of $296 each or ($592 together). Nice tidy 29.6% return right there. And their CCB benefit jumps to 4,523.28 or an increase of $114 a year.
So in just the first year they have received $706 back just by putting $2,000 into their RRSP and reducing their taxable income. Now they committed to saving the increase so they plop this, along with another year of $1,000 each into their RRSP for year two.
- Assumptions
- Annual Household Income: $52,000 X 2 = $104,000
- 2 Children aged 9 and 7
- Live in the Province of Ontario
- Tax rates stay the same for 2 years
Year Two Results
So this year everything is the same and they put $1,353 each into their RRSPs. Remember this is from generating $1,000 worth of bargains plus putting that $353 from last year into their RRSPs.
So now they are owed a refund of $401 each ($802 combined) and their CCB jumps to 4,563.48 or a total increase of $154.20 over baseline. So now we have $956.20 additional money back from the government.
Final Results
This is incredible – by following this habit and creating bargains and investing the difference this household has been able to increase the value of their retirement savings account by $5,662.20. However, they only had to deposit $4,000. The rest came from tax refunds and government programs. Sort of seems like leverage or using other people’s money doesn’t it! Never mind leveraging creativity and smarts to generate the $4,000 in the first place.
Bargain Creation Ideas
Here are some bargain creation ideas that are sure to work and create that extra cash in your pocket that can be easily invested. I’d be interested in some of your ideas too, so please feel free to share them in the comments section below!
- Use a cashback credit card and invest that cash you get back!
- Use Gasbuddy to find the best deals on fuel for your vehicle
- Fuel up at gas stations that offer annual rebates for every liter or gallon of gas you buy
- Get paid to review your shopping experience
- Use Buy/Sell Websites like Kijiji or Facebook Marketplace
- Talk with friends or family and leverage their experience or knowledge
- Check if the vendor has a refurbished product website
Invest the Bargain – Summary
Today we have covered one of the most powerful wealth building habits that should be at the core of your financial approach. As you hunger for bargains with this mindset it will drive you towards finding more so you can invest more. Remember the old saying “A penny saved is a penny earned”? This is at the heart of this habit. Give this habit a shot for a year – you’ll be smarter and richer for it.
