Bishop’s grad financial advisor talks personal finance

Zach Graveson, a Bishop’s University (BU) graduate (‘19) and current financial advisor, presented “Tools for your Financial Freedom: A Graduate’s Guide to Personal Finance” at BU to over 20 in-person and online attendees April 4.

Zach Graveson, a Bishop’s University (BU) graduate (‘19) and current financial advisor, presented “Tools for your Financial Freedom: A Graduate’s Guide to Personal Finance” at BU to over 20 in-person and online attendees April 4. Graveson gave simple and direct advice on debt, budgeting, and investment. The presentation was capped with a question period where Graveson went into further detail on topics such as when to get your first credit card and what priority should be placed on building an “emergency fund.”

Debt

Not all debt is “bad,” Graveson said, it depends on its interest rate – “the cost of borrowing money.” Credit cards and car payments are among the worst kinds of debt. Any debt with a less than five per cent interest rate is “good.” Interest rates of five to 10 per cent are borderline; anything above 10 per cent must be prioritized and paid off as quickly as possible.

A credit card with an interest rate of 20 per cent is like investing in

a fund that is guaranteed to lose you one fifth of your money. The only way making payments on that debt would become secondary is if you knew of an investment that paid out more than 20 per cent. “If you know of that investment, I’ll hire you right now,” Graveson said, “it doesn’t exist.”

Should you rent or buy a house? It depends, according to Graveson. If you want to own property, then buy a house. Either way, you’re paying off a mortgage, either your own or someone else’s. If you want to buy a house, it is better to do it sooner rather than later. He admitted paying your own mortgage can function like an investment or savings account, and said the condo he bought and then sold two years later was one of his best investments.

Budgeting

The simplest way to calculate your own budget is to start with your after-tax monthly income. “Before you get anything it has to go through Mr. Trudeau and Mr. Legault,” he said. From that you subtract your fixed monthly expenses. These are expenses that do not change month to month, like internet, phone, rent and insurance payments. You are left with a rough measure of your monthly disposable income.

Graveson suggests you then calculate what 20 per cent of that disposable income is. This is how you will “pay yourself in the future.” This money should be invested. For example, suppose your after-tax monthly income is $2,000 and your fixed monthly expenses are $1,000. With these numbers you should “pay yourself in the future” $200 a month. He suggests the remaining $800 can be put towards whatever you want. “I’ll never tell an adult not to buy their Starbucks coffee,” he quipped.

Investment

Time is your “secret weapon” when investing. It is best to start as young as possible. He suggests starting with a safe and good base before trying to “hit it big” with riskier individual investments.

The best way to avoid risk in the market is to not try to “time the market” altogether. “People who make millions make those mistakes,” he said. Making solid, long-term investments also takes the emotion out of trading and takes zero effort. Steadily investing a set amount every month, called “dollar-cost averaging,” is your best bet.

To show just how much time is a factor, Graveson compared two imaginary twins, Sarah and Liam. Sarah invests $2,000 a year from the age of 18 until the age of 25 into her tax-free savings account and then forgets about it. Liam starts at the age of 25 and invests the same amount of money per year until he is 65.

Who has more money at the age of 65? Due to the magic of compound interest, Sarah does. At a nine per cent gain per year rate, Liam ends up with roughly $736,000 while Sarah has around $755,000. If Sarah had also invested until she was 65, she would be a millionaire.

When should you get a credit

card and when should you use it?

It depends on the person, Graveson said. You have to be the kind of person who will always pay off your credit card at the end of the month. Some credit cards come with cash back and perks, but they are not worth it if you are not paying your card off. “The big thing is, are you responsible enough to manage that credit card?”

What per centage of your income should go towards your

“emergency fund?”

The 20 per cent of your monthly disposable income that goes towards your investments should first go towards your “emergency fund.” The money should be set aside in a place where it can be accessed immediately and does not depreciate over time. An “emergency fund” is about three months worth of expenses in case you lose your job or face some other misfortune. Everything after that should be invested.

Where should you invest your

money?

Graveson said he could not give direct investment advice, but warned that your money should not be put in a regular savings account. These accounts do not keep up with inflation, so you will be losing money long term. He suggested a high interest savings account (4.25 per cent interest) at the very least. For long term investing, mutual and index funds are safest.