Pay Yourself First to Build Wealth

In my previous article about index ETFs, I discussed the importance of regularly investing in low-cost ETFs. Today, I want to go further and show you how to automate this strategy to ensure its success.

Beyond the Numbers

“Wealth is not about having more, but about needing less.”

This quote particularly resonates with me. In our consumer society that constantly pushes us to buy more, I’ve discovered that true wealth lies in simplicity. Don’t confuse being frugal with being cheap. A frugal person finds creative ways to reduce expenses without sacrificing quality of life. A cheap person saves money at the expense of others and themselves.

A Wake-Up Call

The Canadian savings rate at 2.9% reveals a deeper problem. Our society is trapped in consumerism and debt. Car loans have become a real financial pit, and “0% interest” financing plans are just traps that chain us in an endless cycle of spending.

“Avoiding debt is the best investment you can make.”

Money can be an excellent servant but a terrible master. Each debt takes us further from our financial freedom.

Rethinking How We Save

Most people follow a simple formula: Salary - expenses = savings. This approach explains why so many Canadians end the month with an empty bank account.

I propose a different approach: Salary - savings = available budget. By automating our savings as soon as we receive our salary, we transform a vague intention into concrete reality. We no longer ask ourselves “how much can I save?” but rather “here’s what I have left to spend after paying my future self.”

This method isn’t revolutionary. It simply requires reorganizing our priorities. Saving becomes as natural and automatic as paying rent. It’s a perspective shift that transforms saving from a chore into a habit as simple as having your morning coffee.

A Different Approach to Wealth

My main goal? Reduce expenses.

“Spend on experiences, not things.”

I prioritize experiences over possessions. A good family meal creates more happiness than a new gadget. Travel leaves us with lifelong memories. Skills we acquire never lose their value.

Smart frugality means repairing instead of replacing, buying used when possible, and why not growing your own vegetables.

“Saving is not a sacrifice; it’s a gift to your future self.”

The True Cost of Our Choices

Imagine two people at a restaurant. A 25-year-old and a 60-year-old retiree. Same menu, same $100 bill. But the financial reality is very different. For the retiree, it’s just $100 spent. For the young person? That amount, invested for 35 years at a 7% return, could become $1,000. That’s the real opportunity cost. That daily $5 coffee isn’t just a $1,825 annual expense; it’s potentially tens of thousands of dollars in future wealth.

Understand, it’s not about being miserly or depriving yourself. It’s simply realizing that each expense has a different impact depending on our age. That $120,000 Porsche 911 at age 30 could represent more than a million less at retirement. Everyone must decide if the game is worth the candle.

Our Brain Versus Mathematics

Our brain isn’t wired to understand exponential growth. We think linearly, like stairs with regular steps. But investment follows an exponential curve, like a snowball that grows faster and faster.

Let’s take a concrete example. Alice starts investing $500 monthly at age 35 with a 7% return. At 65, she’ll have $600,000. Bob waits until 45, invests the same amount at the same return. Result? Only $250,000. The difference is enormous: $350,000 less, while Bob only invested $60,000 less than Alice. To catch up with Alice, Bob would need to invest $1,200 monthly! That’s the power of compound returns. Money invested early works longer and generates returns on returns.

My Automation System

I’ve created a system that works by itself, like a self-watering garden. Here’s how I organize my deposits on Wealthsimple:

Each dollar has its role, like a well-organized little army.

The Three Pillars That Make the Difference

1. Forget Emotions
   We all make mistakes when grocery shopping on an empty stomach. It’s the same with the stock market. My system works in the background, ignoring alarming headlines and market moods.

2. Don’t Look for the Perfect Moment
   It’s like surfing. Instead of waiting for the perfect wave, my weekly investments catch all waves. Regularity always beats timing.

3. Smart Laziness
   The stock market is one of the rare domains where being lazy pays more than being hyperactive. Investors who check their accounts every hour and react to every news often end up earning less than those who leave their money alone.

The Magic of Compound Returns

Here’s what $7,000 invested annually (about $135 weekly) with a 7% return gives you:

Key points to remember:

• After 5 years: your returns generated $5,255
• After 10 years: your returns more than quintupled to $26,715
• After 20 years: your returns exceed your initial investment
• After 30 years: your returns represent more than double your contributions

This perfectly demonstrates that time is your best ally in investing. The earlier you start, the more compound returns work for you. It’s just the power of time and regularity.

Optimize Your Taxes Intelligently

In 2025 in Canada, here’s how taxes work:

For someone earning $75,000, here’s an effective strategy:

1. Combine RRSP and FHSA

   • Put in $13,200 annually
   • Get back $4,897 in taxes
   • In the end, each $100 invested only costs you $63

2. The RESP Bonus

   • Invest $2,500
   • Receive $750 free
   • An instant 30% return, unbeatable!

The Optimal Financial Calendar

January

• Contribute to RESP on January 2nd to maximize government grant growth time
• Take advantage of new TFSA contribution rights ($7,000 in 2025)
• Automate your TFSA deposits for the year
• Make your annual budget and plan your savings goals

February

• Prepare your previous year’s tax return to estimate your refund
• Complete your RRSP before the deadline if not already done via automatic deposits
• Fill out T1213 and TP1016 forms for the current year. This step is crucial: instead of waiting for a big refund next year, you’ll have more money on each paycheck now

March

• Evaluate if portfolio rebalancing is necessary
• Ensure your automatic deposits align with your goals
• Check if you’re on track to maximize your RRSP/TFSA for the year

April

• File your tax return early to quickly receive your refund if applicable
• Immediately reinvest any refund received according to your investment strategy
• Verify that your T1213/TP1016 forms have been processed by checking your pay stubs

Optimize Your Source Deductions

Many don’t know, but there’s an interesting tax trick with the T1213 and TP1016 forms. Instead of waiting for your tax refund the following year, these forms allow you to reduce your tax deductions at source. Concretely, if you contribute $12,000 to your RRSP, you can receive about $371 more on each paycheck instead of waiting for a $4,452 refund at tax time. The advantage? This money can be invested earlier or better used in your monthly budget. It’s particularly advantageous when automating our investments since each dollar can get to work faster to benefit from compound returns.

Start Now with Wealthsimple

Automating your savings isn’t just a strategy; it’s the foundation of sustainable financial freedom. By combining regular deposits, good tax planning, and patience, you create a machine that works for you 24/7.

Don’t seek perfection, aim for regularity.

To put these automation principles into practice, I recommend Wealthsimple as an investment platform. Its simple interface and zero transaction fees make it ideal for avoiding capital erosion through fees. Use my Wealthsimple referral link to get a welcome bonus and start your journey toward financial freedom without the fees that slow your progress.

The rates and limits mentioned are for 2025. Always verify current data with official sources.