Well first things first. Spend some, it’s good for your soul and good for the economy!
Living on the current minimum wage of $11.40 per hour is tough. The good news is minimum wage is increasing to $14 per hour on January 1, 2018, and $15 per hour on January 1, 2019. That is an increase of $3.60 per hour, or about 30% in just over one and a half years.
So by all means spend some of your well-deserved wage increase. Maybe buy a few clothes, enjoy a steak, pay down some credit card debt, and buy your mom the present you always wanted to get her and never could.
But don’t forget about your Future Self! Managed correctly, this wage increase could be a life-changing event for YOU!
If you are 25 years old, you likely have another 40 years of work ahead of you, and you will likely live much longer than that.
If you were to save JUST $1 per hour of your $3.60 per hour wage increase until you turned 65, and invested it all in an equity portfolio that earned an average of 8% per year in your TFSA, you would have a staggering $539,000 when you turned 65!
Now that is good, but if you decided to spend ONE HALF of your wage increase, or $1.70 per hour, and then invested the rest the same way as above, when you turn 65 you would almost be a millionaire! You would have $916,000.
This $916,000 could then be invested in a lower-risk balanced portfolio, (i.e., 50% equity and 50% fixed income), earning say 4% per year, that would provide you with a TAX-FREE annual income of $49,000 per year until you were 100 years old.
If your spouse was also earning minimum wage and followed your smart lead, you would have a combined TAX-FREE income of $98,000 per year!