I was fortunate enough to land a job with a bank right out of university after being told I couldn’t continue to play hockey after graduation. I often tell people I went to University to play hockey – not for the education. The education piece was a bonus. I haven’t told my kids this though.
After being at the bank for a few months, I started to recognize how “fear marketing” works. Their mantras were: Invest your money early and the power of compound interest.
The story of Ted and Sally will forever be imbedded in my brain. Ted and Sally were a fictitious married couple that the bank used to exemplify people who started investing in their twenties and, with the power of 40 years of compound interest, managed to accumulate over $1 million as their retirement nest egg.
The cynical side of me thought, “Well, this is great if Ted and Sally had the discretionary cash left over after paying for the mortgage, cars, kids, a dog, a house cleaner, dry cleaning, insurance, food and gas etc.” Few Millennials do. So, if you’re not investing 10% of your pay each month (paying yourself first as the Wealthy Barber suggests), will your retirement income be just Old Age Security and CPP? Surprisingly, the answer is no.
In an ideal world where young people land a stable job right after graduation, have minimal or no mortgage or rent, and a car that’s been paid for – or better yet, don’t need a car or insurance, starting early and paying yourself first would be a great way to save for retirement. But in today’s world, most graduates are lucky to even have a job. So, how is a Millennial supposed to save for retirement? Here are seven surprisingly simple things you can do.
1. Keep it simple.
I am often fascinated about how couples handle their finances and bank accounts. Banks love clients with four or five accounts – and the $15/month service fee they charge their clients. Try not to deal with too many different banks. They are all the same in the end with regards to cost and products. Try to find one close to your home and build a rapport with one of their personal bankers; hopefully someone who will be there for some time.
2. Where are you today?
Calculate you net worth by adding up how much you have in terms of assets less your liabilities. You need to start from somewhere. This will be your yardstick to measure against next year.
3. Set goals.
Where do you want to be next year? Maybe you want to have enough money saved to make the maximum annual lump sum payment against your mortgage, or put 10% into a RRSP/TFSA each pay.
4. Prioritize your goals.
What do you value most? Being debt free, maximizing your RRSP contributions annually, saving for your kids’ education, or buying a cottage? Focus on one thing and when that’s accomplished; tackle the other.
5. Have some fun after accomplishing a goal.
After maximizing your RRSP contribution for the year, maybe it’s time for a nice dinner and a Leafs game. Pick a game when they’re playing a good team – at least so you can see what NHL teams are really like.
6. As your career grows, so should your income and savings.
Typically, you’re going to hit your peak earning years in your 40’s, 50’s or 60’s and should be able to save more then. Especially if you have the kids off the payroll.
7. Live within your means and re-examine annually.
You are always going to strive for earning more (after tax) than it costs for you to live your lifestyle. Try to save the excess. If there’s one thing I’ve learned throughout my career as a financial planner, it’s that there is always more than one way to accomplish something. Who’s to say one way is better than another? It’s not about keeping up with the Joneses; it’s about doing what is right for you. Ted and Sally may very well have the entrepreneurial spirit and throw all their money into a business, then sell it for $1 million when they’re 40! Same outcome; just a different way of doing it. Not sure how to find your way? I can help.
Terry Willis has almost 20 years’ experience in financial services, with particular expertise in working with professional athletes. He understands that the earnings potential of most athletes is often short-lived, and helps young athletes put financial plans in place from their earliest money-earning playing days. Terry provides these players with ongoing financial counsel right through their sports careers and into post-retirement careers.
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