Welcome to this post called “Advice to my Teenage Self” by the author, Nancy O’hare!
I remember running my fingers across my first few paychecks. Smooth paper imprinted with glazed logos and embossed numbers made it seem like I had finally entered a new stage of life, roughened only along the edges where the perforations had torn. I was seventeen. My savings account was slowly growing with every bi-weekly deposit, ticking closer to my target of $2,000 to buy a car. Used, of course. I thought I had mastered my finances. I was saving!
Three decades have passed. If I could leap backwards in time and whisper a few words of advice into my teenage ears, what would I say? Perhaps more importantly, would I listen? Back then, I had big plans and middle age was no more than a blur at the margins of my reality. But life rolls on whether you are in control or not.
I never knew that car I had saved so hard for would get pummeled head on by a drunk driver. I definitely didn’t think my first job after university would take me to Australia, nor my last to Nigeria. Who knew I would trade in a professional career in finance after twenty years to write travel books. I certainly did not expect to have found financial independence in my early forties.
Financial freedom is attainable. Your path to reach it may not play out anything like mine, your best friend or even most of your classmates. But it is your path to find. Perhaps some of the lessons I stumbled across can help you too.
Say “NO” to the Bank of Parents
I learned a lot from my parents. We all do, despite not wanting to admit it when we are young and trying to prove ourselves. In my case, my folks saved government “baby bonus” cheques and I used them to cover a fair chunk of my university tuition. A rising number of today’s parents feel impelled not only to cover college fees, but also to buy their kids cars, make down payments on first homes and even allow them to live rent free well into adulthood.
I thank my parents for not trying to coddle me and buy every whim that I could not afford directly out of school. Sure, I wouldn’t have said that at the time, but looking back it was the best thing for me. It taught me determination. It taught me to value what is important to me and how to allocate my money.
Andrew Hallam, who authored The Millionaire Teacher, referenced a study showing a large proportion of kids who received financial help from their parents were significantly less well-off by their forties than those who struggled it out on their own. That’s right, all that easy money from Mom and Dad actually hurt their chances at financial freedom.
On top of that and although your parents may be willing to do anything to help their precious child get ahead in life, they could be putting their own future retirement in jeopardy. There is a very real risk that you may have to bail out your parents later on if they spend too much of their savings on you now.
I saved for over a year to buy my first vehicle. Despite it being a boring brown hatchback, I cared about that car. I washed it, polished it and my Dad showed me how to change the oil. Admittedly, I never changed it again myself after moving out from home, but hey, I could have!
Three years later, a drunk driver crossed the meridian during a rain storm and smashed head on into my little auto. That accident hurt beyond my injured back and broken hand. I lost something I had saved hard for. Luckily, insurance helped with a replacement, my hand healed and life carried on. But I realized bad things can happen and you need to protect yourself. Mommy and Daddy cannot fix everything. It was time to grow up.
How to Allocate Limited Cash with Unlimited Calls to Spend
In my first “career” job after university, I earned less than $25,000. My bank account dwindled as each pay day approached. But I grew my experience and landed a two-year transfer to Australia. My boyfriend (now husband) got the same opportunity with his firm. We worked long hours, made great friends, explored the country and spent almost everything we earned—until the last eight months.
You see, we both loved to travel. Rather than moving straight back to Canada we chose to take the long route—a five-month trip through Asia, Egypt, Europe and then home. We were ecstatic. The itinerary looked perfect. We devised a budget living on $20 a day per person (about $36 in today’s money adjusted for inflation) plus six months of living expenses for when we returned home and would need to find a job.
During our final eight months, we tracked exactly where our money went. I realized I was spending a scary amount on alcohol and social events with little to show for it the next day. Decisions became easier when I compared spending $20 for a few drinks to gaining one more day of travel. So, I ditched my gym membership and instead started running the hilly streets of Sydney. I stopped eating out and packed a lunch. Evenings with colleagues shifted to a one drink meet-up, drunk very very slowly. The only exception, which felt like a luxury, was a Tuesday dinner deal at our local pub—wine and pasta for $7.
Key Tip:
Focus on what is most important to YOU. Everyone can’t do everything, so put your attention towards what excites and really motivates you. This will make it easier to say “No” towards other things vying for your money.
I Want it So Much I Can Taste It Bucket (Short Term)
Choices. The first things to come to mind are likely for shorter term goals that you need to save for. These are for things like college or university tuition or perhaps a vehicle. Like saving for my first car, I wanted to be sure wherever I put each paycheck, the money would be safe until I was ready to spend it. This relates to risk tolerance.
When saving for shorter-term things that you do not want to risk losing, the best and safest options are:
- High-Interest Savings Account (“HISA”); and
- Government Investment Certificate (“GIC”) in Canada or Certificate of Deposit (“CD”) in the United States.
For any of these accounts and as a backstop against the financial institution going bust, be sure the bank you invest with protects your deposits with Federal Deposit Insurance Corporation (“FDIC”) in the United States or Canadian Deposit Insurance Corporation (“CDIC”) in Canada.
There are also bond funds, which are still relatively safe but can fluctuate in value more than the above options. If choosing a bond fund, Investment Grade categories offer the safest types, but they will still move up and down with changes in interest rates and sometimes due to market sentiment (supply and demand relationships).
Key Tip:
Typically, online financial institutions offer better rates for HISAs, GICs and CDs than traditional big banks.
Financial Freedom Bucket (Long Term)
The second type of savings is focussed on your ultimate financial freedom. Ahhh, that far-off point where you can live happily on your savings and forget about work, if you so chose. This is the savings bucket to hold a mix of equity (ownership pieces of companies like stocks or shares) and fixed income (interest earning products like bonds, HISAs, GICs and CDs).
The first step is to open a discount brokerage account with a financial institution protected by either the Securities Investor Protection Corporation (SIPC) in the United States or the Canadian Investor Protection Fund (CIPF) in Canada. These can be with traditional brick and mortar financial institutions or purely online investment companies.
The hardest question is how much equity and how much fixed income is right for you. Unfortunately, I can’t answer that question in a broad blog. It depends a lot on your personal situation, risk tolerance, goals, income and spending patterns. A very basic rule of thumb is to put the proportion into fixed income that matches your age. So, if you are twenty years old, put 20% in fixed income and 80% in equity.
Generally, as you get older and have less time to recover from market losses, less should be put at risk in equity markets. However, over the long term most of the growth tends to come from equities so you want some of both categories. One to protect, one to grow over the long term. Common splits are 70% equity / 30% fixed income or 60% equity / 40% fixed income.
Key Tip:
Talk to a financial professional for advice, ideally, someone who charges a flat fee for their services or has a fiduciary duty to look after your interests over their own as part of their professional training and designation.
Vanguard and Blackrock iShares offer some helpful tools and low-cost index Electronically Traded Funds (“ETF”), including some great all-in-one products.
Visualize This:
| Scenario | Bare Minimum | Good Job! | Super!! |
| Monthly savings from age 18: | $- | $50 | $50 |
| Monthly savings from age 20: | $- | $100 | $150 |
| Monthly savings from age 25: | $- | $500 | $1,000 |
| Monthly savings from age 30: | $500 | $1,000 | $1,500 |
| Monthly savings from age 35: | $500 | $1,000 | $2,000 |
| Value at Age 40 * : | $82,116 | $246,918 | $434,910 |
| Value at Age 45 * : | $144,221 | $398,594 | $718,688 |
| Value at Age 50 * : | $226,956 | $600,653 | $1,096,730 |
* Assuming an average annual return of 6% and 0.25% fees.
- At $15/hour, it would take roughly 3.5 hours to earn $50 or 7 hours to earn $100.
- If you earn $40,000 per year, 15% of your monthly salary would equate to $500.
- If you earn $80,000 per year, 15% of your monthly salary would equate to $1,000.
Taste the Freedom
With the dream of financial independence comes the dream of living independently. Buying a car and later on, a home may no longer be the best options in many cities across North America. Sure they are convenient, but you pay for that convenience! Is it worth it?
Back when I bought my first car, the nearest bus stop and store was a thirty-minute drive away. Likely, you live nearer more convenient alternatives. Car sharing, cycling, e-bikes and public transport can be a more cost effective way to get around. Plus, these options are more environmentally friendly than using your own vehicle.
Key Tip:
Edmunds offers a very useful tool to understand the all-in annual cost of owning a particular vehicle.
Consider if you save $2,000 every year on transportation costs and invest those savings in a diversified index fund. Assuming that fund earns an average of 5.75% annually after fees, your savings would grow to $48,300 after fifteen years.
What have you given up? What have you gained?
Likewise when you decide to move out from your parents’ place, renting may be a smarter choice than buying. Across many cities from Vancouver to New York, property values have skyrocketed in recent years beyond the rise in wages. However, if you do choose to buy a home, be aware. Every choice has a consequence. Know what you are getting into.
Today’s mortgage rates sit around 2% to 3%. If you buy a more expensive home, it can feel easy to simply push that cost onto a mortgage. The banks seem happy to lend. Your future self will surely earn a nice income to pay it off. It’s part of life to have a mortgage, isn’t it? This is when it is helpful to understand the implication of these choices upfront.
A larger mortgage means you either have to pay more each month or make monthly payments over a longer period. Either way, the portion of your pay cheque going towards your home eats into the ability to use that money for other things. Think about the type of lifestyle you want and how to best prioritize your dollars towards that lifestyle.
A house or condo with a mortgage of $250,000 at 2% interest equates to monthly payments of approximately $1,000 over twenty-five years.
Conversely, a home mortgaged at $600,000 over the same period and same rate would take around $2,500 every month to pay off.
Ask yourself whether the extra “value” in the more expensive place is worth giving up an additional $1,500 every single month for the next twenty-five years. For example, if you are looking for financial freedom, imagine instead that you chose to save this money. In a diversified portfolio, it would be fair to expect an average annual return of 5.75% after fees. Your spare $1,500 a month would be worth over $1 million in twenty-five years.
Body Freedom
The point of attaining financial freedom is to be able to do all the things you dream of. Whether it’s dancing, skiing, hiking, starting a business, volunteering, travelling the world or moving abroad to learn a new language, the benefit of financial freedom lies in the doing not the money. So let me give you one last tip. Take care of your body as much as you take care of your finances. Who wants to have the money but not be able to do what you wanted to be doing?
By the time I graduated from University, I weighed twenty-five pounds more than I had four years earlier. Despite going to the gym regularly, my waist felt uncomfortably snug in my pants and looking at photos looked more like spying on some unfamiliar person. To live freely, financially or otherwise, health is important.
It turned out that back in Australia when I was focused on saving for travel, my scrimping improved my health as well. A win-win for financial freedom and body freedom.
By cutting down on buying alcohol, cappuccinos and restaurant meals, unnoticed calories also slimmed down. Running became my favourite exercise—and it was free. Besides leaving more money in my bank account, I found more space in my waistband. My focussed financial spending actually helped me become healthier.
A couple favourite websites offer recipes not only packed with flavour, but whose ingredients are often quite affordable:
- Jamie Oliver’s Five-Ingredient Recipes; and
- Minimalist Baker has a particularly tasty and easy bread recipe.
The Takeaway
As my final words of advice, spend consciously, save judiciously, and be open to options that come into your life. Educate yourself, try to be healthy and respect others. Above all else, live your life for your goals, on your terms and as best as you can.
Nancy O’Hare is a Canadian traveller, outdoors enthusiast, author and retired finance professional. She earned an executive MBA with distinction through the Cass Business School in London, United Kingdom. She held a Chartered Professional Accountant designation for nearly twenty years before she voluntarily gave it up in good standing when she became an author. Nancy lived and worked across five continents, leading finance teams in diverse locations such as Nigeria, Oman and Switzerland. In addition to being passionate about personal finance, she is equally fascinated about travelling to remote locales and learning about disparate cultures.
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