Advice for New and Old Graduates
Over 500,000 students are expected to graduate from Canadian colleges and universities this summer,and at least another 300,000 students from high schools1. Chances are you know one of them. Congratulations graduates, and welcome to the real world!
As a result of the pandemic, this year’s graduates may feel as though they face a more uncertain future than most. And, while they may not get to walk across the stage in a cap and gown, this is an important time for celebration and optimism as our new graduates begin this new chapter of their lives. In looking forward, here is some simple financial advice that may be useful for recent and not-so-recent grads alike:
Building wealth often has little to do with your income, and a lot to do with your savings rate. Wealth is the accumulated difference between what you spend and what you bring in. You can build wealth without a high income but you have no chance without a high savings rate. (Consider this the next time you order the avocado toast!) In fact, there are many individuals who have been able to amass a tidy fortune with steady jobs and just modest pay cheques – and it often starts with saving.2 Takeaway: If you need help saving, consider making a budget to track your sources of income and your expenses. A budget can reveal whether you are on the road to spending more than you make, and can help you to become a better saver. There are also many applications out there that can help you to set financial goals and prioritize your saving.
The value of wealth is relative to what you need. People require vastly different amounts to get by each month. A dollar of savings to one person is worth something completely different to another. One of the most difficultchallenges in personal finance is preventing the goal post from continuously moving. Often, once you achieve your set goals you create new goals, which may require more money, and the cycle may never end. As such, it is important to determine what is “enough” for yourself, and not based on what others have. Takeaway: Quit comparing yourself to others. This may be especially difficult given today’s pressures of social media. However, there will always be individuals who have more – this is the reality of life. By constantly comparing your position to that of others, it can not only steal your joy, but also your pay cheque!
Time is on your side. As new graduates, you have one of the greatest assets available to you: time. Add in the power of compounding, and you have the ability to grow significant wealth into the future. Consider the benefits of starting early: If you invested $500 each month over the next 20 years, you would end up with around $545,000 by the age of 65, based on a compounded annual rate of return of 5 percent per year. If you started later at age 45, you would need to invest almost 2.7 times more per month – or $1,327 — to end up with the same amount by age 65.3 By starting early at age 25, you would only be investing $120,000 over 20 years, compared to an amount of around $318,000 if you started 20 years later. While retirement may seem far off, it will creep up faster than you think! Takeaway: Start thinking about investing for the future today. Even small contributions on a regular basis can build up to be meaningful amounts in the years to come. You now have time on your side, so if you haven’t yet opened a Tax-Free Savings Account (TFSA) or Registered Retirement Savings Plan (RRSP), consider making this a priority.
Debt can be paralyzing. We are living at a time in which spending money has become increasingly easy — for many things, a purchase is just “one click” away. But if you can’t pay for it, don’t buy it. When you are not burdened by debt payments, you are likely to be more agile. Of course, some debt may be necessary. The phrase: “it takes money to make money” has some merit. Good debt can help you to generate income and increase your net worth, such as debt associated with funding an education or purchasing real estate property. Takeaway: If you have student loans, focus on paying down this debt. If you use a credit card, make sure you pay your bills on time. Credit card debt can be some of the worst to hold as the associated interest costs for balances that are past their payment date are very high. Most importantly, live within your means so you can avoid unnecessary debt.
One of the most important lessons we’ve learned throughout our time working in the investment industry is that the basic principles of successful investing remain timeless. Wealth comes from choices, not chances: choosing to save wisely and pay yourself first, living within your means, eventually putting in place an investment plan that encourages value, quality, and diversification, and having the patience to understand that your plan is working for you over the long term.
It’s a big world out there, but it’s a good one.
You are the makers of a bright future that lies ahead. Best wishes to our new graduates (feel free to pass this advice along!) and enjoy the exciting journey that is to come.
1. Based on Statistics Canada historical data. Sources: https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3710002001; https://www150.statcan.gc.ca/t1/tbl1/en/tv.action?pid=3710000801;
2. “The Millionaire Next Door,” Thomas Stanley & William Danko, Taylor Trade Publishing, 1996; Based on a compounded annual return of 5% per year. Assumes a 25-year-old invests $500 per month for a total of 20 years (or $120,000). After 20 years, the amount continues to compound at 5% per year, to achieve $545,297 by age 65. To achieve a similar return by age 65, a 45-year-old would need to invest $1,327 per month for 20 years (or $318,480).
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The information in this portion of the web site is intended for use by persons resident in Canada only. Canaccord Genuity Wealth Management is a division of Canaccord Genuity Corp., Member - Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Independent Wealth Management advisors are registered with IIROC through Canaccord Genuity Corp. and operate as agents of Canaccord Genuity Corp.