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“If you save $100 per week, starting at age 18 you’ll be a millionaire by age 48.” I don’t remember if those were the exact numbers, but the adage is clear: start investing early, and with the help of some interest magic, you’ll retire young and rich.
I remember hearing this sort of advice when I was in high school. Too bad I didn’t take it.
Instead, I spent my money on pizza and comic books. The ‘start young’ message was always in the back of my head, but I got good at ignoring it. Maybe I figured I still had lots of time. Or maybe I figured I missed the boat and would catch the next one. Whatever the reason for not starting young, one thing was obvious: I wasn’t shaping up to be a rich 40-something.
I did eventually take ownership of my finances, but not before struggling with two major (and I’m guessing, common) investment hang-ups: I was starting too late and I had too little.
Compound interest FOMO is real
Compound interest can be as depressing as it can be exciting. If you didn’t start investing at a young age, there’s this feeling that you’ll never be able to make up for the lost time. And I suppose technically it’s true. Compound interest is most potent when it has time to, well, compound.
But, what about those of us who didn’t start early? Compound interest starts to feel like the original sin of finance: “You started out on the wrong foot — now spend the rest of your life repenting.”
The reality is we start out where we start out. Maybe we didn’t get great modelling from our parents, maybe our money went towards school, or maybe we just didn’t have opportunities to save. But, if you don’t get over your hang-up about starting late, you risk never starting at all.
“The best time to plant a tree was 20 years ago. The second best time is now.”
There’s a reason that Chinese proverb is so overused: it’s true. But, realizing that your money tree got a late start in life is a tough pill to swallow.
Wake up calls to start investing.
Fortunately, life has a way of nudging us past our hang-ups. The two turning points that woke me up were getting married and reading a book called What Is Your Money Telling You? by Joe Barbieri, a Toronto-based financial planner. Here’s what stuck with me from the book: Finances are like a ship, and ships carry their own momentum. Therefore, turning your ‘financial ship’ around won’t happen quickly or easily. If you want to change course and start investing, you need to make persistent and incremental changes. Over time, your ship will turn, and eventually the momentum will be headed in the right direction. But (and this is critical) you have to redirect your ship — nobody will do it for you.
So I got over my first hang-up. I may have been starting late, but I was starting.
The little money ship that could
My wife and I were in our early 30s when we finally got serious about investing. We were lucky to have avoided student loans, and the little debt we had was paid off in relatively short order. We opened up Registered Retirement Savings Plans (RRSPs) and Tax-Free Savings Accounts (TFSAs), and began automating contributions into them from our chequing accounts. Finally, we took the laborious measure of tracking every dollar we spent, to see where the leaks were in our ship. Quickly, you realize the areas that can sink your budget are also the ones that can lead to the biggest savings.
It didn’t happen overnight, but after a few years we noticed our investments were starting to grow. Our ship was turning around! But then, in the distance, we noticed our friend’s ship. A big, fast ship, with a shiny new paint job.
And therein lies our second investment hang-up: comparing.
Steer clear of the comparison trap
The spectrum of financial health is so vast, and filled with so many varieties of apples and oranges, there’s simply no value in comparing your situation to anyone else’s. Regardless of where you are in your financial journey, there will always be someone who’s further ahead or further behind you. And, because everyone’s start points and destinations are different, comparing yourself only serves to throw you off course.
Sooner or later, you’re going to need to tap into your investments. Maybe for a down payment, maybe to go back to school, or maybe to retire. In our case, we cashed out some investments for a new car. Because we were determined to buy it outright (and avoid paying interest on a loan), it meant using a pretty sizeable chunk of said investments. Regardless, by keeping our attention squarely on our own situation, and not that of our friends, family, or colleagues, it felt like a purchase we’d earned and could be proud of.
Comparison can a big motivator for some people. Just make sure you’re only comparing your current situation to your own past — that’s the only progress you should be concerned with.
Simplicity & consistency > perfection
There are a million and one ways to maximize your investments.
But here’s the thing: I’m no investment expert and I have no interest in becoming one. So, instead of self-directing my investments and pretending I understand what the right mix of assets is, I focus on two things: simplicity and consistency. For me, that means trusting a low-fee, online investment platform or “robo-advisor” with determining my risk profile, and using that institution for all my investment accounts. I automate my contributions (at least 10% of my net income) and never carry consumer debt, ensuring ample margin in my income to invest and grow my money with ease. That’s literally my entire investment strategy - simple and straightforward. All I’ve got to worry about now is grabbing my boat shoes, popping on my sunglasses, and keeping this vessel on course.
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