Financial advice I would give my 25-year-old self
CBC columnist Mark Ting shares tips for young people on managing their money, even if they don't have much
This column is by Mark Ting, a partner with Foundation Wealth who helps clients reach their financial goals. He can be heard every Thursday at 4:50 p.m. on CBC radio as On the Coast's guide to personal finance.
Typically, young Canadians don't have a lot of money and if they are recent graduates, they may even be further burdened with student debt. If I were to give my 25-year-old self some advice it would be to practise proper financial habits such as living within my means and investing early.
In theory, this is solid advice, but for many people, it isn't always possible, regardless of age.
That's where the psychology of money comes into play as, to "invest more" one has to "live within their means." The goal is not to be "cheap" where you just don't spend money, but "frugal" where you spend money carefully. Many people who started off poor but have since become financially independent attribute their success to holding a "frugal mindset."
A rule that I live by is to "opt for the base model." Typically, the "base model" option is the best value as it only marginally detracts from the enjoyment of a purchase or experience. Simply internalizing the habit of saying "no" to upsells can be very impactful on finances.
Going to the movies illustrates this principle.
It's a fun activity to do with friends but when it comes to buying tickets I opt for the base model. Discount tickets are readily available and can be bought for around $11 or $12 compared to the DBOX premium seats which sell for $24.75.
Ask yourself, "by spending $25 for a premium seat am I getting 2.5xs the enjoyment compared to watching the same film in standard format?" I don't think so — the standard film is clearly the better bang for your entertainment dollar.
Just because you can afford the $25 ticket doesn't mean you should buy it. Someone with a frugal mindset would ignore the snack counter, use a $10 discounted ticket and set aside the extra $15 to invest. All these little steps add up and more importantly, they are habit forming. That's the key — to develop positive financial habits when young.
One of my biggest financial concerns for young Canadians is the rising cost of inflation. Unless you don't eat, need a place to live or heat your home, our cost of living is significantly outpacing Canada's central bank's inflation target rate of two per cent. It has a similar effect on less affluent Canadians as an additional tax — a tax which disproportionately affects them compared to the middle or upper class.
Inflation means that prices go up — including asset prices. Those who own assets such as real estate, stocks or gold can typically keep pace with or exceed the rate of inflation as the buying power of their assets is maintained. Wealthier people have more assets which is why they can navigate the inflationary waters with less difficulty.
Canadians who don't have a lot of assets feel the brunt of inflation as their cost of living typically rises faster than their salaries. To counteract the negative effects of inflation, it helps to have a frugal mindset to invest early and often.
I realize that simply following this advice far from guarantees one's financial independence, but it is a great start and the sooner one implements these habits, the higher the likelihood of success.