Top 10 Pieces of Financial Advice for Young Adults, from industry professionals
Deciding to speak with a financial advisor can be a scary step, and one people tend to avoid as it means getting up close and personal with your bank account. You probably get a few butterflies when you log in to your online banking system as it is, so putting a magnifying glass to it with an industry professional probably doesn’t sound like the ideal Thursday afternoon.
Fear not! For this article, I reached out to advisors that have dedicated their lives to this industry and asked them for their top financial advice for young adults. I truly believe getting a handle on your finances at a young age is one of the best things you can do to set yourself up for success.
So, if the words exchange traded funds, preferred shares, option expirations and derivative spreads make about as much sense as Mary Poppin’s supercalifragilisticexpialidocious, you’re in the right place.
Read on for the Top 10 Pieces of Financial Advice for Young Adults
1) It’s never too early (or too late) to start
Let’s just get this one out of the way now because I know it’s a huge factor floating around in a lot of people’s subconscious. “Well I don’t need to worry about that yet, I’m still young” or the contrary “I missed the boat, I’m just going to keep doing what I’m doing.”
A lot of people have their reasons for not investing the cash that is sitting in their bank accounts.
Here’s an example to show you why starting now is so important:
Say you decide to set aside $100 to invest each week going forward for the next 20 years. That doesn’t sound too difficult, it’s $200 a paycheque. At the end of that 20 year period how much do you think you’d have? Well, for this example let’s assume a 6% average annual rate of return.
The value of your investments would be $197,078.27. That $100 you sacrificed each week (see this post for a few tips on how to free up cash to do this), has turned into a nice little nest egg.
When it comes to financial advice for young adults, the biggest lesson you can take away is to just start now!
2) Stop telling yourself your money is safer in your savings account
I raise your safety net, and I give you inflation. Inflation ain’t going anywhere. In fact, look at the price of avocados. What a travesty that is. Keeping your moolah tied up in a savings account only means the value of that money is deprecating as the inflation rate rises.
That $5,000 in your savings account last year that’s still there? It’s now worth 2% less. That is like taking a $100 bill and as the clock strikes midnight on a new year, and just setting it on fire and saying adios!
While that may not seem too hard of a pill to swallow, think about what happens if that money stays there for 2, 5, 10 years?! That’s flights to Europe, new cameras for your photography hobby, 26 different cold pressed juices, allll left on the table.
3) When investing, don’t let emotion cloud your judgement
It’s easy to quit when the going gets tough. When you see a screen full of red arrows pointing south, you’ll feel compelled to sell off all your investments and store that wad of cash under the mattress instead. I get it. Wading in the waters of the financial market can be scary. It is your hard earned money after all, and there is risk!
However, just because things look a little sour one day, doesn’t mean you need to abandon ship and run for the hills. Patience is a virtue when it comes to investing.
My advice is to always do your research! Look at articles online talking about what may be causing the disruption. And look at market dips as more of an opportunity than a negative.
Everything is on sale!!
In simple terms, once you have decided on an investment and done your due diligence, trust the process and let your advisor guide you, and don’t be afraid to get more than one opinion.
4) Get Clear On Your Financial Goals
Another huge piece of financial advice for young adults is to find your why. Ask yourself, what am I investing for? What is the longterm goal? For example “ I’m investing for the present to support my lifestyle” or “I’m investing to save money to go travelling” or “I’m saving money for a retirement cabin in the Okanagan, with a boat and a hot tub and a putting green.”
Getting specific with your vision makes it exciting, but it also helps your financial advisor decide how your money should be invested. This is the perfect exercise to decide the amount of risk you’re willing to take on.
5) Dividends are your BFF
It’s no secret. Millennials were dealt a shitty hand when it comes to housing affordability and job security. We are all swimming in a massive, saturated pond of uncertainty just trying to stay afloat. You work insanely hard for your money. Make it a priority to have that hard earned money work for you.
All the advisors I’ve worked with stress the importance of finding stocks that offer a handsome dividend.
Dividends are little cash presents that companies give you monthly, quarterly or annually as a way of saying thank you for investing with them. Dividends are one of the biggest upsides to investing versus keeping your cash in your bank account.
6) Netflix and (let your money) Chill
As young people, we have an opportunity to identify emerging trends. Look around at your habits and the habits of your friends. What brands are they buying? What new technology are they excited about? Where are you spending your hard earned dollars as a consumer? My dad used to always ask us girls, “what purses are kids buying these days? Is Coach still cool?!” You can do the same.
For example, say you cancelled your cable back in 2012 and started consuming all your media on Netflix. That would have been a good indicator that there may be an opportunity in the industry and that it’s changing. If you had purchased the Netflix stock at that time 5 years ago at $8 per share, your $1,000 investment would now be worth roughly $25,547.50.
7) “Don’t invest your grocery money”
Don’t start investing money that you really need for things like rent, groceries, and daily life. When the market is booming, it can be really enticing to continue to contribute to your portfolio. Be careful.
Budget out your year. How much money do I need for rent, groceries, bills, my social life? Only put away what you would otherwise spend on nonsense.
Read this post for an exercise on how to find areas in your life to cut costs from, and invest that money instead.
8) Did somebody say TAX-FREE?
I’m sure you’ve said it before.. “The only things certain in life are death and taxes!” We lump that shit in with death! Taxes aren’t fun. If you’re in Canada, you know the government gives very little tax breaks. So when they introduced the Tax Free (music to my ears!) Savings Account, it was a game changer.
If you’re able to, max out your TFSA (usually $5,500 a year). All the money you make from the investments in that account is, as the name promises, TAX FREE.
Hallelujahhhh. Take that, Trudeau! You can’t touch this money!
*pays 12% liquor tax on celebratory champagne*
Ever heard the saying “Don’t put all your eggs in one basket?” It may be really enticing to see a promising investment opportunity and throw a bunch of money at it. What happens though, if things don’t go as promised, and the investment is a bust?
This is where diversification is so important. Treat your investments as little sprinkles on a delicious sundae versus one single cherry on top. You can do this in a number of ways. Invest in different industries, in different countries, in different types of investments.
Find a good balance that works for you. The stock market shouldn’t house 100% of your investable income. Look at other areas. What is Real Estate like in your area, or in vacation spots nearby?
Sprinkle, sprinkle, sprinkle. Little bit of this, little bit of that.
So, you’ve read through the top 9 pieces of financial advice for young adults, and you are ready to speak with an advisor. Holll’ up. Choosing an advisor is just as serious.
While many advisors like to showcase all the things they can do for you, some may not be as forthcoming about how much those services will cost you.
I don’t want to turn you off of investing, in fact the point of this article is to do the opposite. But there are advisors out there that charge high fees and take advantage of people. Many of them don’t want to shed light on their fees or commission structure. Enter #10, and one of the most important pieces of financial advice for young adults:
10) Find the Right Advisor
This is where choosing the right advisor is so important. When you find one you like and trust, pull the curtain back, and find out exactly where your money is going before you invest with them. Find out the following:
- Does the advisor charge an annual fee, or do they charge on a per transaction basis? Figure out which option is best suited for you
- Inquire about your liquidity options. Is there a fee to take your money out (liquidate) say if you want to buy a home?
- What are the industry standards?
- Do you even need a financial advisor? Or should you get started on your own? Chat with family and friends and people you trust in the industry and they can lead you in the right direction to get started.
I hope these 10 pieces of financial advice for young adults has helped you understand the industry a little better. Getting a grasp on investing is a lot like the process of learning to cook. Once you know what bake, fry, and season mean, you can get your head around it. When you see growth, it’s like watching numbers drop off the scale after you’ve tried a new diet. And just like weight loss, you’ll try certain things and they may not work out, while others pay off like crazy. Slowly but surely, you will find what works best for you, and you’ll never look back.
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