Starting out: Great financial plans begin at graduation
Every life is unique, but Canadians in the 24- to35 age group have a lot in common when it comes to investing.
“Typically, we see that people on the younger end of this age group have finished post- secondary school and they’re just starting out in their first career,” says Krystal Riggs, senior financial adviser, Newfoundland and Labrador with Scotiabank.
“I remember what it was like when I graduated from school. My No. 1 priority, like many of our customers in this age group, was to pay down my student debt. They’re just beginning to save but very few of them have anything resembling a formal financial plan. Such concepts as planning for retirement appear to be so far in the future that usually they’re not a priority at all.”
Yet graduation from postsecondary school is a great time to book an appointment with a financial adviser. Riggs says she’s committed to listening to her customers and having an informal chat about achieving their financial goals. If their priority is eliminating student debt, beginning to save for a down payment on a first house or looking to buy a car, she’ll help them develop a workable plan that can include short-, intermediate- and long-term planning. She also works to help them develop an appetite for saving and the habits that will support it.
“For many, it is the first time in their lives they’re earning an income on a regular basis,” says Riggs. “If they had an education savings plan set up for them by their parents and there is little to no student debt, they have even more disposable income. That income gives them the ability to begin saving for the future.”
Having likely spent their student years on a budget, people entering the workforce may be inclined to want to enjoy the first fruits of their labour. Riggs notes that this is exactly the right time to develop good saving habits. She encourages customers to consider setting up pre- authorized contributions based on their pay cycle that go directly into such savings vehicles as retirement savings plans or tax- free savings accounts — both of which can be leveraged to augment down payments for a home.
Pre- authorized contributions work best, she says, because people tend to quickly find ways to spend all of their income. It’s easier to launch a savings program if customers never factored that money into their disposable income in the first place.
Younger people also have the distinct advantage of compounding their earnings over a long time horizon. The more they earn and save now, the easier it will be to finance retirement plans later. Based on current assumptions (an average annual return of 6.23 per cent), she says, a person who saves $150 a month beginning at age 25 will have saved $330,000 by age 65. “If you decide to wait another 10 years before you start saving that $150 per month, that accumulated amount will be cut in half,” says Riggs.
“When you have a long time before you retire, you can also take significant advantage of growth opportunities,” she says. “If you’re 24 and you possess the risk tolerance, an aggressive portfolio can accumulate a lot of value over 30 or 40 years.”
Riggs notes that anyone can book a no- obligation meeting with a Scotiabank financial adviser at no cost. Lack of knowledge about savings plans or investment vehicles is not a barrier to entry. Even concepts such as retirement are only discussed in general terms — for example, does the individual foresee extensive world travel or imagine a quiet life spent close to home?
Riggs says there’s no reason to be intimidated. “If you need to see a doctor, they won’t expect you to bring your own diagnosis with you,” she adds. “It’s the same seeing a financial adviser.
“You can talk to us for as long as you like and at the very least you’ll learn something about the financial options open to you. If you want to go further, we can recommend a customized financial plan that’s unique to your needs at the beginning of this important chapter in your life story.”
*This article is for general information purposes only and is not intended as specific financial or tax advice.