38 Special, or, Some Advice for You Young Whippersnappers*

In no particular order, some wisdom I’ve acquired over nearly four decades (yes) that I wish I had known, and acted upon, much earlier in life. I address this advice to anyone over the age of 14. Part one of a series all this week.

PART 1: MONEY

Save your money now, because you’re going to need it later. Life is ridiculously expensive. University can cost tens of thousands of dollars; if you choose to have kids, it’s something like $150k to raise one to adulthood; then there’s a house to live in; and down the line, which will come much faster than you realize, is retirement. And gods forbid, but emergencies happen and you should have a fund for that, too.

I can’t stress this enough — get into a habit of saving first. Then, after you’ve salted away 20-30% of your immediate income, you can spend the rest on life’s necessities and pleasures. It may seem obvious, but you can’t save anything if you’ve spent it already; if you’re always getting to the end of the month and are coasting on the fumes of your bank statement, then this probably applies to you. Putting aside a pre-set amount via automatic withdrawal is easy to set up — talk to a financial advisor at your bank or other trusted financial institution.†  

Besides retirement savings (or RESP for your kids’ or your own education, etc), you should keep 6-8 months’ worth of salary saved up as an emergency fund. You never know when you’re going to be downsized — as happened to me in late 2007 — or when the next job may come. 

If you’re under 20, for instance, a student working a summer job and still living with your parents, that’s an even better time to salt away a decent wodge of cash as your expenses are low to none. Given how long we expect to live nowadays, you’ll spend 20 to 30 years of your life post-retirement living on your savings. Accounting for future inflation, you are likely going to need around $1,000,000 to carry you through this period, if you figure living expenses of about $20 – 30k / year, even after your mortgage is paid up, etc. So get cracking! 

If you are young or just getting your first job, remember that compound interest is your friend. Starting early reaps a much bigger reward down the line. Starting a retirement savings plan when you’re nearly 40 like me means you have much less time to build up that million bucks. In essence, I’m trying to make up for 20+ years of not saving anything; if I had started when I was 18 I’d be in a much better position. Again, this is where talking to a financial advisor can help. Once you get into the habit of saving and budgeting, that small amount every month will carry you through the rest of your life.

Oh yes – there’s the matter of credit. Get some, because you definitely need a good credit history, but you have to stay in control of it. Only spend as much as you can afford to pay back relatively quickly — then pay it off in full. Credit card interest is much higher than a regular bank loan, line of credit or mortgage — we’re talking 24% vs maybe three to five percent at the moment. So $500 on a credit card adds up much faster than the same amount on a line of credit attached to your bank account.

Even at low interest rates, it’s easy to get in over your head. When I was in my early 20s, with under $1000 of credit card debt, I succumbed to a $10k credit line offer from the Royal Bank. I was totally too young to handle that amount of “free money,” and promptly dug myself into a hole that took years to recover from. Having negative net worth for nearly a decade is *not* fun, so take this as a cautionary tale. 

† As a totally unpaid plug, my financial advisor is Shahid Hannan at Investors Group. He’s super nice and he even makes house calls.

*And PS, get off my lawn, if I had a lawn, which I don’t, but you can stop spray-tagging my entranceway, kthxbai.

Filed under: Uncategorized