Hey, we all have to start looking at our finances at some point. One of the worst and best things about the world we live in is that our finances dictate the vast majority of what we can and cannot do. That’s why running through the best financial tips for the young investor is so important.
Simplifying a complex subject that unfortunately isn’t effectively taught in schools is an important task. The sooner you start to excel at the subject of Personal Finance, the sooner you will be Financially Free! So, what should you know?
Build an emergency fund
Start investing today
Make it automatic
A degree isn’t the only option
Stop relying on other people (investing)
Learn about financial statements
Learn to use credit cards correctly
Understand the power of compounding
Think about cash flow
Stop trying to look rich and be rich
1. Build an emergency fund
Building an emergency fund is one of the best decisions you will ever make in your life! An emergency fund is just that, funds for an emergency. What would constitute an emergency?
- You losing your job.
- The furnace in your house needing repairs.
- Getting injured and not being able to work.
- Vehicle trouble. The list goes on.
But, there are rules for your emergency fund. Such as, it needs to be an emergency! Too many people get trapped into starting an emergency fund and once there is some money put aside “an emergency” comes up and poof, months or years of saving is gone never to be replenished. Now, if a real emergency happens like, you lose your job and now have no income.
Having your emergency fund will be a lifesaver!
You need to be actively contributing and replenishing your emergency fund, always. This also means it is extremely important that your emergency fund is in a separate account such as a CIT Money Market Account or CIT High Yield Savings Account.
The CIT Money Market Account will provide you with the BEST interest rate available for your emergency fund while still giving you the protection of being FDIC insured!
While the CIT High Yield Saving Account will be a safe and secure place to store your emergency fund but has a slightly lower interest rate. Open one today and start your path to freedom!
Getting started can be fairly simple but you get to choose how complicated you want to make it. If you need to manually transfer money every week to an emergency fund you will probably get de-motivated and then stop.
This is easily fixable by setting up automatic transfers every time you get paid. The money comes right off the top the same day that you get paid and you don’t miss what you never had. Open your online banking and you can set up automatic transfers right from the site or in the app.
Remember you don’t spend what you don’t see. This is also a good reason to have your CIT Money Market account separate from your daily accounts.
2. Start investing today
This sounds simple but in actuality, it can be very overwhelming. It’s ok if that’s how you feel, you don’t need to have an MBA to become an investor. It’s also why financial tips for the young investor is so important!
So if you have little or no experience with investing, why does it make sense to start today? And where do you start?
Why start today?
Starting your investment journey today is going to do two very important things for you.
- You will be actively involved in your own investing.
- You will now start to feel accomplished when your money is making money.
Getting yourself actively involved in investing in some way is a huge motivation to learn. The world of investing is big and there is a lot to learn but it doesn’t have to be complicated. You can start investing today and be making the same returns as a professional investor within days. I promise!
Almost every year the overall market beats the big hedge funds and many other money managers. Why? Because the fees associated with the managers just end up taking too much money. The good thing though is you don’t need to pick stocks and start using options or other complicated investment tactics.
You can begin investing today with a Robo-Advisor like Wealthsimple and be making as much or more than any professional in the field with virtually no fees. Check out some options right here, but know that a Robo-Advisor is great for your investments. A financial advisor is going to benefit you more with everything else such as your house, car, loans, credit cards, etc.
Number two was, you feeling accomplished about your investments. A good Friend of mine says:
“You can’t have $1,000,000 invested without investing your first $100”
The statement stands true through the test of time. People have been investing for thousands of years. Yes, the stock market isn’t thousands of years old but it didn’t stop people from investing their money by lending it to people or trading one thing for something else of higher value.
For you though, once you start investing you will notice something. Your money will grow but so will your confidence. You have accomplished something very important! You made money, with your money!
That’s the name of the game. Save money and make your money make money! The only reason the golden goose doesn’t make it into the soup is that it lays golden eggs, it creates money! Check out a Robo-Advisor today!
3. Make it automatic
Automation is a wonderful thing for people to take advantage of. That’s why it landed at number 3 on our list of financial tips for the young investor.
It’s so easy anyone can do it! Seriously, if you think “O, I don’t have any money!” Respectfully, you’re wrong!
Think about what you spend your money on. Do you buy coffee or tea every day? Every other day? Do you eat out once a week? Are you a “closet snacker?”
If you can come up with $2 every day for a coffee, tea, or a Frap chino extraordinaire topped with shaved whatever it is, you can come up with $2 a day for YOURSELF!
Quick math, $2 a day for a year is, $2 X 365 days = $730. ($14 a week)
$2 a day invested for 30 years at 8% return (average stock market return) will become $90,668.63!!!!!!!!!!!
Don’t tell me you don’t want to turn less than $1,000 into OVER $90,000!
Simply, make it automatic! Set up an automatic transfer with your bank account that moves your investing money every time you get paid! Money comes in you pay yourself and start investing it! Simple and effective!
Getting the right account is important too. You should be using a Saving Account or a Money Market Account like the ones mentioned before from CIT. You will get the advantage of higher interest and it will be separate from your regular “everyday” account.
4. A degree isn’t the only option
Since you started in school you have been told and told that you need to go to college or university and you need to get a job and you need to do this and that. Well, it might be all crap!
You don’t NEED to do any of that and really, MANY people have millions in the bank but don’t have a college or university degree. They have something much more valuable.
They have a plan! A plan they follow to build knowledge and start a business. Even if you aren’t interested in starting a business there are options to avoid the expense of college or university.
According to Topuniversities.com;
If you’re a Canadian citizen studying in Canada, you can expect to pay an average of CA$6,463 per year for an undergraduate degree, and CA$7,056 per year for a graduate degree.
Other options may be starting an apprenticeship in a trade. This is the option I took at 16 years old and after years of working in the trades and going to trade school for a couple of hundred hours of training (a few weeks which I paid $300) I had no school debt and was off making money while all my friends were sitting in a classroom learning something most of them still don’t use.
Explore your options and you never know, you may find something MUCH better than following what you are told you HAVE to do.
5. Stop relying on other people (investing)
For me, this is a big one! There is nothing scarier in my mind then working hard and saving what I can just to give my money to someone and have no idea where it is or what it’s doing. That’s what inspired me to make financial tips for the young investor. Don’t get me wrong, this is how most people’s finances work which is ok, just not for me and hopefully in the future, not for you.
Imagine for a minute that you are working and saving. You give your money to someone to invest for you and at the end of the year, you don’t make any money. That’s possible even if you do all the work yourself but, the upside potential of learning and doing it yourself outweighs the downside.
Perhaps you had a good year investing and your money made 7% in the Stock Market. Awesome! But now let’s look at the real numbers.
Right now through the highs and lows of inflation, the economy tries to average 2% inflation every year. What does this mean?
If you have $100 and want to buy a pair of shoes that cost $100 right now you can. Assuming we have an “average inflation” year of 2%. Next year those same shoes will be worth $102 because of the increasing costs due to inflation. This means you can no longer afford the same pair of shoes with your $100.
So now back to your investments, you made 7% this year in your investments but lose 2% or purchasing power due to inflation. Now, your return is hypothetically 5%. Then because you give you money to someone else to invest for you they take 2% as well due to fees and other expenses. Your actual investment return that year will be closer to a 3% return.
By learning to invest yourself you can keep that 5% and make significantly more from the power of compounding which you will see later.
6. Learn about financial statements
I know, you’re not an accountant why should you learn about financial statements?
There’s a simple reason. Your own money!
Basic Financial Statements include The balance sheet, The Cash Flow Sheet, and The Income Statement. If you get a good grasp on financial statements you will have a MUCH stronger financial health yourself.
Once you learn how Assets (things of value) and Liabilities (amounts owed) work together you will get a better picture of how YOU are doing in your financial life. The thing a lot of people don’t understand is that an individual income, assets, liabilities, and cash flow all work the same.
You have Assets and Liabilities like a business and with a job of some kind you have cash flow going into and out of your accounts. It’s all the same just on different scales. So there’s a trick.
Getting an amazing resource like The Beginners Guide to Understanding Financial Statements will explain how to go through business and see where the money is going. But, this is all about big businesses.
Here’s the trick: $10 works the same as $1,000,000 so big numbers on publicly traded companies work the same as smaller numbers in your account. Once you understand that the Beginners Guide shows you the extreme potential you can have to improve yourself! (It will also help you start investing for yourself #5)
7. Learn to use credit cards correctly
The easiest and worst thing on our list of financial tips for the young investor is Credit Cards. Credit Cards are amazing tools but have the potential to do a lot of damage!
Since Credit Cards started being used they have gained popularity like wildfire. Everyone was getting a card and spending money they didn’t have on things they didn’t need. Then the bill comes and WHAT! I can’t pay for that!
The easiest and sometimes the most damaging trap to be in is Credit Card debt. With interest charges between 15%-25%, it can completely drain you financially. There is just no way, paying 25% interest for years is going to benefit anyone other than the bank!
So how do you use Credit Cards correctly? Simple, Pay off anything you purchase before the end of the month so you don’t get charged interest.
Simple, right? Not really. If you had the money to buy “whatever” in the first place, you wouldn’t have to use a Credit Card. That’s where the problem is. Things come up and need to be paid for. Well, as a young investor what can you do to fix that?
Start at #1, build an emergency fund. Build it and then you won’t need to use your card or if you do you will have funds available to pay it off before the end of the month.
The next thing to know about Credit cards besides paying off the balance before the end of the month so you don’t get charged interest is; if you DON’T pay off your balance by the end of the month any FUTURE purchases after those 30 days start accruing interest from the date of purchase!
This means that when your Credit Card starts at $0 you spend $100 and pay it off before the end of the month you don’t get charged any interest. But, if you start with $0 then spend $100 and don’t pay it off you get charged interest, Now, if the next month you spend another $100 you will start accruing interest from the day you spend it.
The “grace period” to pay it off before the end of the month no longer exists because you had a previous balance. Don’t let yourself fall into the trap of Credit Cards. Use them smartly and ALWAYS pay them off as fast a possible.
8. Understand the power of compounding
The most powerful tool we have in our financial tips for the young investor is understanding the Power of Compounding!
The Power of Compounding is investments making money and then the returns from those investments making more money.
Let’s carry on with our example before. I gave you two scenarios earlier one was investing in the Stock market and paying someone 2% to do it for you and the other was you learning how to safely invest yourself (or get a lower fee option) saving you the 2% charge.
You don’t HAVE to invest yourself. You can start today sitting right where you are with a Robo Advisor and have your money invested and the fees to have that done at extremely low. Most fees for a Robo Advisor such as Wealthsimple are between 0.25% and 0.5% that’s a big saving for you. Check out my Best investments and you can start right now.
Ok, now back to our scenario. You received a return of 7% in the Stock Market and for the moment we are going to exclude inflation. One side of the coin you’re going to pay 2% in fees and the other let’s assume you start with a Robo Advisor and pay a 0.25% fee.
|Scenario||Investment Amount||Fee||Return 7%-fee||10 years||30 years|
In this scenario, you will make an EXTRA $30,655.01 in 30 years of compound interest just by signing up with one of the Robo Advisors on our investment page. The initial $10,000 had no money added to it over that time. The interest made from the first year continues to make more interest and so on.
It looks like this with a 5% return (monthly compounding)
The interest is making interest which compounds your returns making more and more money the longer it is invested. That’s the power of compounding!
9. Think about cash flow
Cash Flow is more important than any other part of your finances. It’s easy to understand why. If you have $1,000,000 and you are going to spend $50,000 every year to live you have 20 years before running out of money. ($1,000,000 / $50,000)
There is no cash flow IN through that scenario only OUT. Every year you would have $50,000 less until it’s all gone. Now if your $1,000,000 was invested and paying dividends (payouts from investments) of $50,000 every year that would be different.
You could live indefinitely if your investments are creating cash flow. That’s the reason we all go to work really. You need a constant Cash Flow to be able to pay for ongoing expenses.
It’s up to you to start thinking about cash flow. Here are a few investment options.
Dividend-paying stocks pay you a portion of the business income usually every quarter. (every 3 months) When you buy a stock you are buying a small portion of a business. Some businesses pay out dividends to their shareholders and this can create Cash flow for you.
Real Estate is all about Cash Flow, You can buy a property and start making hundreds of dollars every month just by having a tenant. Now you should be running Real Estate as a business to protect yourself but it is an excellent way to boost Cash Flow
Something that has been going on for years is Personal Lending. It can be a good way to create cash flow as well but use caution. Personal Lending is one of the more risky investment options available.
You can build a business on the side and start to increase your Cash Flow even if you are young or in school. The internet offers so many options and makes it super easy. You can start right now with Bluehost, get a website, and start selling or write a blog.
Focusing on cash flow allows you to continually add income to yourself rather than being stuck with whatever your hourly wage is at work. Take the time to create Cash Flows IN rather than OUT.
10. Stop trying to look rich and be rich
Faux Rich or Fake Rich is a big phenomenon that has been going on for a long time. People naturally what the shiny new thing that just projects how awesome they are.
Keeping up with the Joneses is a common saying that encompasses what I mean. So many people believe that if they just get that new phone or if they drive the biggest truck or fastest car they will have somehow won. After all, the rich can afford this so if you buy one you will be looked at like you’re rich.
Why would you want to be looked at like you’re rich but struggling? Dave Ramsey calls people who buy a big house and struggle “house Poor”. They have an amazing, beautiful house which is way more than what they need and they struggle to afford it. This almost always ends with them losing the house in the long run.
Something WILL come up at some point. The dog may get sick, the furnace may break who knows. But, something will happen and now instead of being house poor, they will the sinking, not able to afford that high-class house.
Don’t fall for this trap. If you want to have a mansion you need to be able to pay for it. That means you need to have large cash flows and enough money to actually afford it. Live within your means and stop trying to show the world how important you are.
If you want to show the world you’re rich, become rich! Learn to properly invest, save your money, and build income streams that will last a lifetime. Your friends will sport their fancy cars for a few years and you might not but 15 years from now you will be able to buy that big house and not be house poor because you bought an investment, not a fart can for your exhaust.
The Financial Tips for the Young Investor
There you have it, 10 financial tips for the young investor. If you aren’t sure where to start try this. Look at where your money is going and start saving a little bit. Take 50% of what you can save and put it into a savings account or Money Market Account for your emergency fund. Then with the other 50% head over to our Best Investments and start a Robo Advisor Investment fund. You will get the best of both worlds and slowly you can build your future.
Start today because tomorrow will come no matter what. You need to be building for tomorrow.