IT’S NEVER TOO EARLY
Start now so you’re ready.
I overheard a couple of young teens talking about money at a mall food court this summer. One of them sighed, threw his hands to the heavens and lamented, “Man, we’ll never be able to buy a house in this market!”
This young man’s friends answered just as dramatically, “You need money to play that game.”
As humourous as it may seem coming from kids, their words echo the sentiment of many adults these days. And the advice I leaned over to give them is the same I’d give to anyone else, of any age.
Why not start now? It’s never too early, and it’s never too late. We’ll deal with the second situation in another blog post, but here I’d like to discuss the former.
A 15-year-old who starts putting $25 a week in a bank account will have $13,000 set aside by the time they turn 25. That’s without factoring interest, or any additional deposits they might make (birthday or Christmas money, for example). Put that money in a modest investment account that gets an average 5% annual return, and that young person is looking at another $3,000 in interest.
As you might imagine, the scenario isn’t limited to teenagers, the price of a daily cup of coffee, or saving for a house. Whether you’re 15 or 55, regular deposits will see a savings account grow over time.
Choose a specific target for your money — it could be a down payment, or a trip through Europe, or paying for a new car in cash (just imagine how good it would feel to get a brand new vehicle but have no payments!). Put inspiring pictures of your target on your fridge, in your wallet, on your computer home screen and anywhere else that will help you stay on track.
If you don’t seem to have an extra few dollars a week, start looking at your expenditures. Is there something you can do without? Could you eat out less, buy fewer toys, or shave some money off of your cel phone bill? We’ll come back to this when we talk about compound interest in another post, but the more you can put in your savings account early, the more buying power you’ll have later on.
One client of ours — a couple, actually — started two accounts for their new baby daughter three years ago, and they are making modest deposits of $100 per month to both of them. The first was an RESP, saving money for her post-secondary education. By starting now, they estimate they’ll have a decent start on the tuition necessary in 2025. We can’t predict how much McGill or UBC might cost by then (or even your local community college, for that matter), but it sure won’t hurt to have a cool thirty-five grand in the bank when that little one gets her first acceptance letter. (For the sake of our examples, we’re using 5% average annual return — if you want to know where to put your money while you’re saving, you should speak with an investment advisor.)
The second account is for a down payment on a house. If the couple is able to continue their $100 monthly contribution until their daughter is 30, she’ll have have $85,500 to plunk down on a property. And remember our teenager from above? If she starts contributing at 15, too, there will be $118,200 in the down payment account when she hits the big three-zero.
Don’t worry if you didn’t have an account started for you at birth. The point is, it’s never too early, and no amount is too little to start with. The parents above started with just a hundred bucks, and so can you!