It's Your Money  

Being a millionaire doesn't matter much anymore

Redefining 'wealthy'

In recent years, Canada has witnessed a staggering rise in home prices, particularly in major cities and desirable retirement areas like the Okanagan and Vancouver Island.

This unprecedented surge has reshaped the traditional notion of wealth, rendering the status of being a millionaire less significant in terms of purchasing power and financial security.

As home prices soar, the value of being a millionaire diminishes, prompting individuals to reconsider their financial targets and adopt more realistic and holistic approaches to wealth management.

The astronomical increase in home prices across Canada has significantly altered the real estate landscape, creating what some economists describe as a housing affordability crisis. Factors such as low interest rates, limited housing supply, population growth, and foreign investment have fueled this surge, making homeownership increasingly unattainable for many Canadians.

As a result, individuals who may have once considered themselves wealthy or financially secure due to homeownership find their net worth tied up in illiquid assets, leaving them cash-poor and potentially vulnerable to economic downturns.

The erosion of the millionaire's purchasing power can be attributed to the disproportionate rise in housing costs relative to other goods and services. While being a millionaire was once synonymous with affluence and financial freedom, owning a million-dollar home in today's market does not necessarily provide the same level of financial security.

In fact, many homeowners find themselves house-rich but cash-poor, struggling to cover expenses and save for the future despite the perceived wealth tied up in their properties.

To set better financial targets in light of Canada's soaring home prices, individuals must adopt a more comprehensive and diversified approach to wealth management. Here are some strategies to consider:

Focus on liquid assets—Instead of fixating solely on homeownership as a measure of wealth, prioritize building a diverse portfolio of liquid assets such as stocks, bonds, and cash reserves. Liquid assets provide flexibility and stability, allowing you to weather economic fluctuations and take advantage of investment opportunities as they arise.

Invest in income-generating assets—Look for opportunities to invest in income-generating assets that yield consistent returns over time. Dividend-paying stocks and interest-bearing securities can supplement your income and provide a source of passive cash flow independent of home equity and the real estate market.

Diversify investments—Avoid putting all your eggs in one basket by diversifying your investment portfolio across different asset classes and sectors. Diversification helps mitigate risk and maximize returns, ensuring that your financial well-being is not solely dependent on the performance of the real estate market.

Prioritize financial security—Instead of striving to achieve a specific net worth milestone, focus on achieving financial security and independence. Build an emergency fund to cover unexpected expenses, pay off high-interest debt, and invest in retirement savings vehicles such as RRSPs and TFSAs to secure your long-term financial future.

Reevaluate definition of wealth—Challenge the conventional notion of wealth and redefine success based on your personal values and priorities. True wealth encompasses more than material possessions. It encompasses health, relationships, personal fulfillment, and the ability to live life on your own terms.

Seek professional guidance—Consider consulting with a professional financial planner who can help you develop a tailored financial plan based on your unique circumstances and goals. A professional can provide valuable insights, expertise, and guidance to help you navigate Canada's dynamic real estate market and make informed financial decisions.

Skyrocketing home prices in Canada have reshaped perceptions of wealth and financial security, making the status of being a millionaire less meaningful in today's economic landscape. To set better financial targets, individuals must adopt a more holistic approach to wealth management, focusing on diversification, liquidity, and long-term financial security.

By reevaluating their definition of wealth and seeking professional guidance, Canadians can navigate the challenges of homeownership and achieve greater financial well-being in the face of rising housing costs.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.

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About the Author

Brett Millard is vice-president and a member of the executive leadership team at FP Canada, the national professional body for the financial planning industry. A not-for-profit organization, FP Canada works in the public interest to foster better financial health for all Canadians by leading the advancement of professional financial planning in Canada. 

He has worked in the financial advice industry for more than 15 years and is designated as a chartered investment manager (CIM) and is a certified financial planner (CFP).

He has written a weekly financial planning column since 2012 and provides his readers with easy to understand explanations of the complex financial challenges they face in every stage of life. Enhancing the financial literacy of Canadian consumers is a top priority for Brett and his ongoing efforts as a finance writer focus on that initiative. 

Please let Brett know if you have any topics you’d like him to cover in future columns ,or if you’d like a referral to a qualified CFP professional in your area, by emailing him at [email protected].


The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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