So, here I am. A 30-year-old. That’s right, today is my birthday. No, I don’t feel any older or different, but I’d be lying if I said that I wasn’t taking stock in my life in a way I don’t usually do on birthdays. So far, things have been pretty good — got a great kid, a fantastic wife and a cozy house in Toronto; I still can’t believe I’ve made it this far. But, and it might seem crazy to say to people who aren’t personal finance nuts like yourself, but I can’t stop thinking about retirement. Not the living my life in the sun part, but what it’s going to take to get there.
It’s been a wild few months in the journalism world — mass layoffs plus an uncertain business model equals an even more unstable future in this biz. Add to that a growing daughter, two small, but unexpected renovations this year and other seemingly climbing costs and I can’t help but feel like a deer in the headlights, frozen in the middle of the road. At one point retirement seemed so far off, and it still does, but after writing about personal finance and investing for a few years I’ve learned two things: you can save for the future, and it’s hard to save for the future.
So what to do? I decided to ask some respected friends, colleagues and family members for their advice.
If anyone knows a thing or two about investing it’s my uncle. He’s a business guy who ran a successful company. Now, in his 60s, he plays golf, vacations in Florida and has a brood of grandkids. His advice is to “take care of the present” before focusing on saving. “That means living within your means and budgeting, making sure you’re progressing in your career, so you’re bringing in an ever growing revenue stream and have a life partner who shares your goals and aspirations.” If I do have some cash to invest, he says pick companies with assets that will survive down the road and stick it out through all the ups and downs. “They must be there for you when you turn 65,” he says.
Good advice, but I wondered what wisdom the editor of MoneySense would impart. Duncan Hood’s been working in the personal finance space for many years, so he knows a lot about saving and investing. Here’s what he had to say:
“Canadians find their 30s are the toughest years when it comes to finances. First there’s the new house, which not only means mortgage payments, but buying all the furniture to go in it. Then there’s the new car — or two new cars if you both work. And just when you think your paycheque is being stretched to the limit, it’s time to have kids!
“The problem is that your costs are very high, but it’s still early days for your career, so your income isn’t as high as it will be in your 40s and 50s.
“So what should you do? First of all, relax. Everyone finds their 30s a bit lean. Don’t worry if you’re not saving much for retirement. And don’t deny yourself a bit of fun either: you’ll only be in your 30s once, and you should allow yourself some cool trips and other life-enriching experiences.
“At the same time, you should be careful not to take on too much debt. If you go crazy with debt during your 30s, you can end up spending your 40s digging yourself out, which means you can’t start saving for retirement until your 50s. However if you keep your debt under control, you’ll find that once you hit your 40s and your income starts going up, you’ll be in really good shape.”
That sounds good. I especially like the part about relaxing.
The guy behind the popular Canadian Capitalist blog had a bit of a different take. The 36-year-old says that “everyone should try and save a chunk of their income.” He paid off a significant portion of his mortgage before he had kids (too late for that one). If he could do things differently, however, he would have done a better job at investing his savings. “I was chasing all the hot tech stocks and earned poor returns,” he admits. “It took me a long time to kick the stock picking habit and I wish I had simply invested in broad-market indexes.” He’s now using the Couch Potato Portfolio method.
My cousin Mark is a few years ahead of me. He’s in his mid-30s, with three kids. He kept his words of wisdom succinct: “Saving versus spending is about a trade off between today and tomorrow. One needs to think about finding the right balance. This balance is not easy to find nor is it offered in a text book.” I think he’s still trying to find that balance too.
I asked Wade from my hockey team what he thought I should do. “Basic Wealthy Barber stuff,” he says. “Pay yourself first, RRSPs, RESPs and if you’re using your tax return on your credit card or line of credit instead of putting it into the RRSP or mortgage each year, you need to adjust.” He also suggests getting into real estate (which I’ve done) and, perhaps most importantly, “don’t consume like an a**hole. Consider your car nothing but the rapidly depreciating lifestyle appliance it is. Keep it tuned, keep the mileage low, and get back to investing in your net worth.”
Finally, every good son has to go to his dad for advice. Like many thousands of baby boomers, my parents haven’t been especially diligent savers. They did a great job providing for me and my brother, which meant helping out with University and life in Toronto (I moved from Winnipeg) while I was in school. In other words, they were spending money on us, rather than saving what they need for their golden years. They still have some time before their working days are over — my mom and dad are in their mid-50s — and they do have investments and RRSPs, so they’re not a lost cause by any means. Still, if my dad followed his own advice when he turned 30, maybe he’d be kicking back on a beach today.
“Get into the habit of saving, even if it’s a small amount,” he says. “Whether it’s 1% of earnings, make sure you automatically deposit part of your paycheck. I didn’t do that — there was always something else that seemed more important. It’s difficult to prioritize, and at 30 with a family that will be hard to do. But you need to get into the habit.”
He adds that it doesn’t matter what I put my money into at this stage. Whether the cash goes into a mutual fund or GIC, it’s just important to do something now.
That’s great advice too. And everyone’s right. Save, work and enjoy — if I can do all three in the next few years, I think I’ll be just fine.
(Or, maybe I should just listen to the advice Mr. McGuire gave Ben Braddock in The Graduate. Thanks Wade for video tip.)