My parents lost their house when I was 4 years old and that is the reason why financial literacy is so close to my heart. While growing up, I’ve seen both of my parents struggle financially. They were always arguing and bickering about money. What happens in your home? Does your family openly talk about money? Isn’t that an important subject to talk about these days? I think it is. This is a subject we don’t learn in school. Today, many adults still struggle with it.
As a result of my environment and circumstance, I’ve been self-motivated to be better with money. This environment helped shape my views on money. I got my first job when I was just fourteen years old and started saving at a very early age. I wished to be financially free and independent. I’m here to share with you practical real tips from a Canadian perspective that can impact your lives if you decide to take action. My hope is that you will have at least one takeaway or nugget which can have a lasting impact on your life. Now, onto my three financial literacy tips.
Financial Literacy Tip #1: Know why and what you’re saving money for
Know your values, beliefs, and desires around money. Know exactly why you are doing what you are doing. Whether you are saving up $100 for those new kicks, $10,000 for that dream backpacking vacation like I did back in 2008, or $200,000 for a down payment on a home. Once you have a desire to save towards a monetary goal, next you start with the end in mind or the outcome and work backwards.
Break down the amounts into mini chunks. This can be date-oriented say 6 months, or to match monetary amounts such as when you are paid. Also, if there are any tax implications, this must be considered in your planning and overall strategy. Be sure to check in regularly with your accountant on potential tax savings as everyone’s individual circumstances vary and change over time. Another helpful tip I can offer is to be vigilant around budget time and be more well informed by understanding some of the different CRA guidance and tax rule changes that come into effect. These can vary and change every year. The Canadian tax system is very complex and complicated, so having the right professionals in your corner and being more informed about the tax rule changes can help you create a better plan and future with your money.
Financial Literacy Tip #2: Make more thoughtful expenses – spend on things you need
What do I mean by thoughtful expenses? Ask yourself once, twice, three times before you spend your hard-earned cash. People always think they need to make more money to be happy and to be content. Where you have the most control is on the expenditure side of the equation. Are you the type who needs to buy a $5 dollar latte in the morning and after lunch? Do you spend $15 dollars a day on lunch at least four times a week? Do you see a new pair of kicks on sale for $100 and have the urge to pull out your credit card to buy it NOW? You get the point.
The more money you make, the more money you spend. Someone who makes $30,000 a year will live a certain lifestyle and someone who makes $200,000 a year will also have their lifestyle. What is the true value of their money?
Do you want to understand your current state of affairs better? Sit down and conduct a self-audit of your past six months of spend through your online credit card statement. Next, create buckets of different expenditure types and understand each type. Some examples are meals and entertainment, clothing, travel, or gas. You can even go deeper and more granular on those expenses such as meals and entertainment: meals – dining in and take out, drinks, and meal prep programs if you need further clarity on it. This will open your eyes and make you much more self-aware of your real spending habits. If you have financial goals and aspirations for a better quality of life in the future, start with first understanding how you spend will help you get there.
Financial Literacy Tip #3: Save & Invest Early
Sabine Peters (https://www.kredite.org/)
It’s never too late or you are never too old to start saving. Understand the different investment options and investment vehicles available on the market today will help you thrive for years to come.
There are many options available for people these days. Specifically for British Columbians, the two most popular choices if you intend to maintain roots in this province are equities or stocks and local real estate. I truly believe, if you are living in the lower mainland long term, you must own real estate. Check out the Canadian Real Estate Association’s home price index tool.
You can buy and own shares of companies or stock. These exist in many forms and can be owned on many different types of exchanges. Further data points show the possible percentage growth of a carefully picked stock held for long durations can exceed any alternative investment on this planet. In Canada the dominant ones are the TSX and the TSX-venture exchanges. In the US, are the NYSE and NASDAQ.
After speaking and having an intriguing conversation with a gen Z friend of mine. I asked a few simple questions to understand him better.
- What are you going to do with your money?
- What are you in a rush to do?
- Why do you look for those returns right away?
- Why do you need that instant gratification?
My advice is to use the following two differentiators for your long term benefit. The key word to focus on is ‘long’ term.
- Time
- Patience
Use time as an asset. And investing requires patience.
I believe if you can truly master both of these components the rest will take care of itself. Many good things in life such as getting great long term return on investments take time. This could be 10, 15 or more years.
How does one use time as an asset? Simple, there is something out also known as the 8th wonder of the world as coined by Warren Buffett – compounding interest. How can one achieve that? For us Canadians, the breadth and variety of investment options are limited if you choose the retail self-directed route. One potential feature attached to some shares is a dividend reinvestment program (or DRIP) offered by an organization. There are many variations so make sure you read the fine print. An example could be holding a share that pays dividends. The dividends received can be reinvested to buy additional shares at 98% of the market value while at the same time paying no additional fees to acquire them. I’ll continue this in another post! You can read more about compounding interest and conceptually how it works here.
The key takeaway is using time as your asset and the longer the time horizon (the younger you are) the more potential for exponential returns. And be patient.
When investing, try to avoid chasing capital gains. It’s very tempting. Most lifetime portfolio gains have some form of income or cash flow element to them. This income portion could be a coupon payment, interest, quarterly or monthly dividend payment. 80% of lifetime portfolio returns or gains come from this. Again, try to not chase capital gains since stock picking is very difficult and timing the market is almost impossible. Yes, everyone gets lucky now and then.
Try and save as early as humanly possible and have that money working for you as quickly as possible! Invest, invest, invest – make money your slave! In the end, you will be in a much better financial position if you follow some of these tips! What you do in your teens and your early twenties, your thirties and forties will thank you. And remember, it’s never too late to get started! Good luck and happy saving & investing!
ABOUT THE AUTHOR:
Brian is a Real Estate Consultant and a Chartered Accountant (CPA, CA). He has over a decade of experience delivering on various audits and risk advisory engagements with both public and private organizations. Brian also was a Product Manager at a local software company and ran his own consulting business prior to converting his side hustle and real estate passion of 16 years into work. He has personally lived and breathed how a person buys and sells a home more than the average person does in a lifetime. Brian is born, raised, and schooled in Vancouver. Brian is a resident, owner, and investor. Brian is happily married to his wife Katharine and has a daughter.
Disclaimer: This communication is not intended to be and should not be used as investment advice. If you want advice please seek a licensed professional for investment advice. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official position of Oakwyn Realty Downtown Ltd.
