What Are Your Investment Options?

Following graduation, you’re unlikely to have a huge amount of spare cash – even saving money might be tricky, because you’re likely to be taking just the first steps along your career path, which usually means long hours and low pay. Thinking about the future is still very important: things like a house down-payment or mortgage deposits can be difficult to have on hand when it comes time to buy a home if you don’t save for a long time. Financial planning needs to happen at every age and every stage of your career. Simply saving however is not always the best because of inflation which essentially reduces the value of your savings over time – you need to earn some interest on your money, so that it keeps up with or even outpaces inflation, which means making an investment.

There are many different forms of investments, but only some of them will be suitable for you depending where you are with your money. This is because there can be barriers to entry in terms of the amount of money you need before you can invest, and there’s also the issue that investments inherently carries risk. You can potentially lose money, or earn a profit, depending what you choose.

Bank Accounts

The simplest method of earning interest on your money is of course to leave it in the bank. Usually, your bank will have a savings account available that typically pays a couple of percent per year (or these days, a fraction of a percent) of your average balance. This is generally good enough to beat inflation, but many people would rather their money worked a little harder for them, which is why they seek out other, less secure but potentially more lucrative, forms of investment. Banks are a good place to start though; if you’re saving some of your paycheque each month, ensure it’s going into an account with a decent rate of interest. I bank with Tangerine, which offers no-fee banking and high-interest savings. Right now you can earn $50 for opening an account using my referral key: 32251507S1

Pensions

Many people don’t think of their pension as a form of investment, but when it actually comes to retirement, you’ll be using the money you’ve saved up to purchase an annuity or something similar. For this reason, retirement is something you should be thinking about as soon as you can. If your employer offers some sort of pension plan, begin contributing as early as you can. It’s much better to give yourself plenty of options on retirement, because those in a strong financial position will be able to have more control. Click here to find out more about how this kind of thing works.

Financial Markets

Stocks, options, foreign currency, precious metals. There is a huge number of different financial products that people invest their money into, and these are great options for people who want to actively manage their investments. It used to be the case that you needed to be extremely wealthy to get in on the action, but these days almost anyone can get involved to some extent. For example, I started investing in the stock market with only $1,000, and even in the few years I’ve been in the market, more investment vehicles, like ETFs, have become more accessible.  It’s all about watching and recognizing what’s going up and down in value, and then putting your money in the right place.

An investment is something that you can start at any time, even without having piles of money in the bank. Think about things carefully and you can make your money work for you right out of school or university.

Are you sabotaging your parents’ retirement?

Here’s an uncomfortable topic many millennials might not want to address:

You might be sabotaging your parents’ retirement.

How? Spending their money. Or more accurately, letting them spend their money on you. I understand that sometimes an unkind job market or a heavy debt burden sometimes forces 20-somethings back home, but there’s a difference between letting your parents support you in troubled times and taking advantage of parental kindness. What shocked me recently are facts like these: even millennials earning over $75,000/year are accepting help from their parents.

I can’t fathom having mom and dad buy me groceries or give me money for clothes, especially when earning anything more than minimum wage. But the problem doesn’t stop there, because parents are also going into debt to help children pay for their post-secondary tuition and are leveraging themselves to help kids with major purchases like a downpayment on their first home — it’s even suggested that parental help is what’s contributing to inflating Canadian house prices. But the harsh reality both parents and kids need to accept is this:

Your parents probably can’t afford to help you.

At least not the way they’re trying to. You’re not doing much damage hanging out in their basement and adding a few poptarts to their grocery bill, but if they’re gifting you tens of thousands of dollars to pay down your student loans or buy a house, they might be giving you more than they can afford. It’s easy to think things like “my parents have worked for the past 30 years, they can afford it” but on average the head of household age 45-54 on average has only $60,000 saved. Older parents age 55-64 have a piddly $100,000 to their name on average. This means any major money gift that has four or five zeros behind it could be putting a significant dent in your parents’ nest-egg.

Truthfully unless your parents are sharing their bank statements with you, you have no idea where they stand financially.

There’s a good chance your parents are being more generous with you than their bank accounts can handle. Every time they gift you with five-figure sum (or more), that’s money that’s no longer compounding in their retirement accounts to keep them comfortable in their golden years. For parents that are going into debt to keep you from falling into a hole, it’s even worse. They might not want you to be saddled with student loan debt in your twenties, but it’s far, far worse for them to be saddled with student loan debt in their fifties or sixties. You at least have your entire working lifetime to pay off your debt, whereas your parents are likely leaving the workforce in the next few years.

If you’re self-sufficient, tell your parents to keep their money for themselves.

Amongst my peers I’ve heard of parents of modest means giving tens of thousands of dollars to their children. Some from their savings, others borrowing from things like a HELOC or other debt. I think many young people are so grateful for the money, they don’t really think about where it came from, let alone how it might affect their parents long-term. If you think you don’t have to worry about it, think again: if you have to care for your parents in old age, their money problems will rapidly become yours — after another decade of interest compounding on the debt. Is it worth it to get an extra $10,000 from mom & dad now if it means both you and them have to suffer later?

If mom and dad can afford to give their cash away, they can do so when they gift you with an inheritance. In the meantime, tell them thanks but no thanks, you can pay your own bills.

Why The Rules Don’t Apply To Me

When it comes to financial planning, most of the rules are based on how much you earn, how long you’ll live, and what you’ll save. But what if the rules didn’t count? I’m not a fan, and here’s why:

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A house will never be my biggest asset.

My disenchantment with home ownership is no secret on this blog, and it doesn’t look like the tide is changing anytime soon. I think my fiancé and I will eventually purchase a home, but it will never represent an integral part of my wealth-building strategy or retirement plan. For many people, most of their net worth is tied up in their principal residence. As someone that highly values liquidity and cash-flow, that’s not the right move for me. We’ll be putting down the most money we can on the smallest home we like, and diverting our money to more profitable investments, like stocks.

I never want to stop working.

Early retirement is BS, I never want to stop doing things that make me money. I’m open to taking whatever winding road my career will take me down, but one thing I will never ever do is stand still. Anyone in their 20’s planning to retire at 50 is in the wrong career — because if you’re less than 10 years in and you already want out, that’s a really bad sign. I expect to hit financial independence in my mid-30’s, at which point neither my fiancé or I will have to clock-in at the office to pay our bills, but will we stop? Doubtful. I’m rarely one to leave a party early, and quitting the rat race anytime before my heart stops beating is too soon for me.

I might live 100+ years.

The number one problem with retirement calculators, is they predict how much money you’ll need based on forecasting that you will be average. In Canada, the life expectancy is 81, which isn’t short… unless you’re a member of my family. I have yet to experience the passing of a family member, for which I am extremely fortunate. Not only does this mean my grandparents are celebrating birthdays after 85, the Casey clan seems surprisingly good at avoiding accidents. It’s true I might break the cycle by getting hit by a bus tomorrow, but if I don’t, there’s a strong possibility my retirement funds have to last for a long, long time (hence my above plan to never stop making money).

My career has no income ceiling (and neither does yours).

Now this a bold claim, but it’s a true one: how much you earn in your lifetime is up to you. I probably read Atlas Shrugged at too early an age, because I’m still an idealist when it comes to believing you can be profitable in any career in any industry — you just have to hack it. Granted, there are some that are easier than others: a doctor will earn more than a teacher, for example… But that doesn’t mean the teacher can’t develop a multi-million dollar study tool that they sell to the school boards across the country and grossly surpass the earnings of any family physician. Opportunity is everywhere, and I’m hoping to grow my money in unique, entrepreneurial ways through my full-time job and part-time endeavours.

One of the simplest secrets to leading an extraordinary life is shunning the ordinary. I encourage you to break the classic money rules when it will make your richer to do so .

The 5 Lies You’re Still Telling Yourself About Your Money

Happy Friday, readers! I’m writing my last final exam tonight, wrapping up the second last term of my MBA. I’ll be off school until January 5th, which means lots of time to catch up on reading & writing — for pleasure, instead of for school.

5 Lies You’re Still Telling Yourself About Your Money

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you can’t keep secrets from yourself forever!

1. Planned spending is savings.

It feels good to have money in the bank, but if you’re planning to dump it all on a major purchase like a vacation or a car, it just doesn’t count. I’ve long abandoned the habit of counting my vacation fund in my net worth calculations, and you should too — because it doesn’t count. If you’re going to dump your cash into something that’s going to eat it up, like a wedding or a car, it’s not an asset. Let’s all stop kidding ourselves and be honest about what’s really savings, and what’s just planned spending.

2. You get to spend your gross income.

I’ve lamented about this one before, but I feel the need to say it again because we all seem reluctant to accept the truth: we do not take home our gross income. If you’re using Gail Vaz Oxlade’s budget pie, you’re going to run out of money before you run out of slices. Next time you get excited that your housing costs are less than 35% of your income, make sure making this calculation with your net income, not your gross. You don’t get to spend your gross, you spend your net. Your gross income is purely for ego. The sooner you realize that, the better off you’ll be.

3. You don’t need to invest in tax-advantaged accounts.

The TFSA (tax-free savings account) is the best retirement savings vehicle available. Yep, you read that right. I’m moving away from using my TFSA as an “everything” savings vehicle, and devoting it exclusively to raising my net worth — a move I should have made years ago. But at least I’ve always taken advantage of tax-advantaged accounts, many savers out there are saving outside the TFSA or RRSP entirely. Sometimes this is because they don’t understand how they work, and sometimes it’s because they’re into self-sabotage. How do you know which account is right for you? The short answer is you should focus on maxing out your TFSA before you put any money into your RRSP. If your income is over $50,000, you might want to contribute to both, as RRSPs will give you a tax break at the end of the year.

4. You have to finance a car.

My fiancé and I drive a vehicle you might be embarrassed to be seen in, because the car is as old as we are. Thankfully, it only leaves the parking garage about once a week to go to the grocery store. The rest of the time, we make use of public transit or our own two legs to get where we need to be. In a world where everyone thinks it’s normal to have a car payment, we’re total weirdos. But I’m going to let everyone in on a big secret: you don’t have to finance a car. You can save up a few thousand dollars and buy a car that costs that much! If you want a nicer car, then save up more money, but this idea that there’s such thing as a “downpayment on a car” needs to stop. If you can’t buy a vehicle outright, you can’t afford it.

5. You don’t have to invest.

Some of the saddest stories I’ve ever heard are people that have tens of thousands of dollars… sitting in a chequing or savings account earning nothing or next to nothing in interest. Young people are so wary of the stock market sometimes it’s hard to convince them, but the reality of the matter is you can’t afford not to invest. If you’re keeping your money in a chequing or savings account, it’s not even keeping pace with inflation, which means rising prices are actually eroding what you’ve put away. You’d actually almost be better off spending your money than saving it this way, because it will buy you more today than it will in the future. Wow isn’t that depressing! Treat your money right and buy some index ETFs.

Which of these have you been telling yourself? Any more money lies I missed?

TIAA CREF – Financial Help For Young People

TIAA CREF – Financial Help For Young People

If you are a young adult, it’s very likely that finances are becoming a part of your daily thinking, more than ever before. Managing your money is tough. TIAA CREF is there to help you figure it all out, whatever your needs. If you can do it with money, TIAA CREF can help you learn about it.

Do you need to figure out how to stretch your paycheck and save? Are you stressed out under the weight of student loans? Maybe you need a hand developing your emergency savings, or maybe you are preparing to embark on your first investment. The grown up financial life is pretty complex, but it’s something you can learn to handle. Let TIAA CREF answer all your questions and offer the best advice you’ll find.

Many young people are on their own for the first time in their lives. This time can be especially challenging financially. Lots of these adults are living on their own for the first time, paying bills and managing budgets. These are skills that typically aren’t taught in schools. Some young people are embarrassed to ask for help, but this is what we specialize in. TIAA CREF has no expectation of your financial expertise. They are happy to answer any questions you might have, help you understand the details of your financial life, and set a good course for the future. Sit down with one of our advisors. When you stand up again, you’ll have a much better understanding of how to approach the next week, the next month, and the next decade. The decisions you make now will make a big difference in the way your life proceeds. Luckily, they have the knowledge and experience to set you off in the right direction, and they’ll always be there during the rest of your financial life, whatever you need.