Your 20s and 30s are the time of your life when you can enjoy all that the world has to offer. Things that, in your teens and early twenties, you maybe couldn’t afford. You may have just paid off your student loans (or are nearly there). You might rent an awesome apartment downtown. You might indulge in brunch with your friends once a week, or jet off to Mexico with your spouse for a well-deserved break from work. Treat yourself, right?
But your 20s and 30s are also when you should start to lay the groundwork for a bright financial future. That means setting savings goals and making smart investments now. I know it feels like you’ll have more money later, but unless you start saving now, you probably won’t.
Take inventory of your priorities.
Hey, you can still have your avocado toast – and eat it, too – if you budget for it correctly. If you feel like you don’t have the means in your budget to start investing, it’s time to make room. Learning to live within your means early on means you’ll avoid taking on an increased debt load. It also means you’re setting your future self up for financial success. Even if you’re only starting with a small monthly contribution to your investment account, doing so earlier will benefit you in the long run.
How to start.
To start investing, you want to set aside a portion of your paycheque on a bi-weekly or monthly basis. Aiming for 10-20% is a great baseline for setting yourself up for future success. Use our budget calculator to figure out the savings plan that works best for you.
Make it automatic.
Set up a pre-authorized credit (PAC) to a savings account. You predetermine the limit and the transfer happens automatically on a date you set in advance (like the day after pay day). Out of sight, out of mind.
Move most of your money out of chequing.
Do your future self a favour and move your money to an account that will earn you the most bang for your buck (in other words, get that interest!). Most financial institutions offer a high-interest savings account that will pay a better interest rate than a chequing account. You won’t get rich leaving your money in a savings account, but if you will need access to the money quickly, this is a better option than a chequing account.
Put it in the right account.
So you’re ready to move some money out of your chequing account… but where do you move it to? Remember that everyone has different saving goals and there are different ways to save, which all come with their own unique benefits. For twenty-somethings, it’s important to take advantage of tax-advantaged accounts like a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP). Not sure which one is best for you? Answer a few simple questions here and we’ll help by recommending which investment could be best for you. Keep in mind that both of these accounts have limits to how much you can contribute in a calendar year, so be aware of that when contributing.
Under a TFSA or RRSP plan, you can keep your money liquid or take advantage of the tax-saving benefits by getting a term deposit or purchasing mutual funds. Your risk tolerance will help inform what kind of investment you make, and a financial advisor can help you make an informed decision.
Age is on your side.
And not just because your skin still looks great. It’s important to invest appropriately for where you are in your life. You should want to make a profit no matter what age you’re at, but when you’re younger, your risk tolerance is likely higher than someone nearing retirement. Investments often go up and down in value, and when you’re young, you have more time to make up for potential losses if the cookie crumbles that way.
Another benefit of investing at an earlier age is the wonders of compound interest. When you have money in an interest-earning account, you build wealth by earning interest on the interest you make. So the longer it’s invested, the better it gets. TL;DR: your money earns money that earns money.
Don’t forget about debt.
Work on your credit score – the better your score, the lower rates you will likely get because a good score shows you are more likely to make your payments on time.
If you have a bad credit score, the good news is you can improve your credit score if you improve your credit habits. Make your payments on time, every month. A payment even one day late can be seen by the credit rating agencies as a lapse. So make the payment a few days early to allow for processing time.
Overwhelmed? Take a deep breath.
Don’t worry – money matters can confuse the best of us. The Where You’re At Money Chat is a service we offer to help make complicated money matters simpler. Your Financial Advisor will help you go over how you are managing, saving, growing, and protecting your money and get you started with an investment plan that works for you.