Ramit Sethi dispels widespread money myths: 3 tips to help Canadians thrive financially

1. You don’t need to own a home to build wealth

Homeownership has long been seen as a cornerstone of financial success, especially in North America. In Canada, the housing market continues to soar, with prices in cities like Vancouver and Toronto remaining among the highest in the world. Despite this, Ramit Sethi argues that buying a home isn’t essential to building wealth.

Many Canadians feel pressured to buy property due to the notion that it’s the “Canadian dream.” Even with the Bank of Canada lowering its interest rate, housing prices are still up 30% since April 2020, which means that renting, while inevitable, could actually be a smarter financial move for some.

According to Point2, renters now make up 33.4% of households nationwide, and it’s becoming increasingly clear that this group can also achieve financial security through other means. Investing in diversified assets, such as mutual funds or exchange-traded funds (ETFs), can offer comparable or even better returns than homeownership, without the burden of mortgage debt and fluctuating real estate values.

For those who still want exposure to the real estate market without buying property, there are options like Real Estate Investment Trusts (REITs), which allow you to invest in commercial or residential properties and benefit from real estate growth while keeping your capital liquid.

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2. Couples need a shared financial vision

In Canada, household finances are often a joint effort between partners, but many couples find themselves on different pages when it comes to major financial goals. Sethi points out that a “shared financial vision” is key to a successful partnership. Whether it’s deciding to buy a home, invest in your child’s education through an Registered Education Savings Plan (RESP), or planning for retirement with a Registered Retirement Savings Plan (RRSP), both partners need to agree on their priorities.

Canadian financial experts stress the importance of aligning on key factors like risk tolerance and investment time horizons. For example, if one partner prefers a low-risk Guaranteed Investment Certificate (GIC) while the other wants to invest in higher-risk equities, it’s essential to find a balance that reflects both preferences. Consider working with a certified financial planner to create a long-term strategy that satisfies both partners’ goals.

3. Build a rich life beyond financial assets

Canadians, much like their American counterparts, often equate wealth with material possessions. But Sethi encourages people to broaden their definition of what it means to live a "rich life." For many Canadians, this could mean focusing on experiences, such as traveling across the country or spending quality time with family, rather than solely acquiring assets.

A rich life also includes being prepared for unexpected financial challenges. Building an emergency fund in a high-interest savings account HISA is crucial for protecting yourself against life’s inevitable curveballs. Currently, some Canadian financial institutions offer savings accounts with interest rates as high as 5%, a far better return than keeping your money in a traditional chequing account.

In addition to smart saving, Sethi recommends mindful spending. He suggests tools like Wealthsimple, a Canadian robo-advisor that simplifies investing and makes it easy to set aside extra cash for the future. By rounding up your everyday purchases and investing the spare change, you can gradually build a portfolio over time without feeling the pinch in your budget.

Final Thoughts

As Canadians navigate a changing economic landscape, it’s important to challenge outdated financial beliefs. Whether it’s rethinking the necessity of homeownership, aligning financial goals with your partner, or redefining what a rich life means to you, applying these principles can put you on the path to financial freedom.

Sources

1. Reuters: Canada's housing affordability crisis may persist for years despite rate cuts, by Promit Mukherjee (Sept 30, 2024)

2. Point2: Rentership Ranks on the Rise: Canadian Cities With Highest Shares of Renters (Jun 6, 2024)