The Tax-Free Millionaire

The Tax-Free Millionaire

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  • Tax-Free Savings Account
  • What is a Tax-Free Savings Account? - A tax-advantaged account provided by the   Canadian government -  One can pick what to put in this basket,    items include exchange-traded funds,    guaranteed investment certificates, stocks,    bonds and yes, actual savings accounts - The best part is that whatever gains you    make from the investments in that basket    you pay no taxes - This means you pay $0 in capital gains tax    for decades of compound interest. 
  • Let's take a look at an example: If you invest $1000 when you are 18 at an average return of 8% (which is the average return of the stock market) your investment will compound to $37,000 when you turn 65 years old.  When you withdraw the $37,000 you will pay $0 in Capital Gains Tax for the $36,000 gain your money has earned you. This is the advantage of a TFSA, unlike the RRSP where you would have to pay Capital Gains Tax
  • Other Advantages of a TFSA: - Great when you are young because of two reasons:        1. You have the power of compound         interest.        2. When you are young you most likely            are not earning a lot so you are paying            less in taxes which is like a win-win so            this is perfect for people aged            between 18-30 who have not reached            their potential income - You can withdraw money whenever you    want for a TFSA without penalty. So say    few years down the road you need the    initial $1000 you deposited, you can    take it out (and once again, tax-free)
  • How do you become a millionaire using a TFSA? If you invest $15 a day or $5,475 a year, starting from age 18 all the way up until the age 53 if you consistently invest $15 a day with an average annual return of 8% you will have a whopping $1,018,909.26. If you continue to invest $15 a day for 12 more years all the way until you are 65 years old you will have an even fatter $2,677,998.60! If you use the 4% rule in retirement every year and have a modest interest rate that is adjusted for inflation you can spend about $100,000 annually in your retirement which is crazy!
  • Notes for becoming a millionaire $2,677,998.60 ACCOUNT BALANCE - $257,325 YOU CONTRIBUTED == $2,420,673.60 PROFIT. If you average this out to the 47 years you pretty much earned $51,503.69 passively TAX-FREE. This is literally without doing anything other than being financially smart, living frugally, and being disciplined enough to contribute to your TFSA. In fact, that $51,000 is much larger than the average Canadian income.
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