31 – Financial Advice I Would Give to My Younger Self

Wayne  0:04  

Welcome to the Debt Matters podcast where we help Canadians find solutions to their debt with Licensed Insolvency Trustees from across Canada. I’m Wayne Kay and in today’s show, we’re going to be talking about that financial advice that you would give to your younger self. 

To join me for the discussion, I’ve got Derek Chase from Derek Chase and Associates, Licensed Insolvency Trustee serving Vancouver Island, Sunshine Coast, and BC North Coast. Derek, thanks for being here. 

Derek Chase  0:31  

Hi Wayne, It’s a pleasure to be here today.

Wayne  0:32  

I think we’ve kind of touched on these kinds of wisdom and advice before on some of our podcasts. But today, we’re really going to dive into it. And we don’t want anybody feeling bad because the perfect time to start learning about finances is right now.

Derek Chase  0:48  

For sure. I would say that it’s never too late to start now, start small, start today. That’s the urgency of it. You can’t think about years gone by, but you can only look forward. So let’s talk about some important things.

Wayne  1:02  

It’s kind of like stock investing or anything like that. Nobody would have known what would have happened with certain companies. So you can’t beat yourself up over it. I remember somebody mentioning that to me, Hey, would you have invested with Microsoft at the very beginning if you’d known? And I’m like, Well, yeah, if you’d known. But you had no idea when you looked at the picture, you’d say, Hey, this group of hippies, this Bill Gates guy, I don’t know,

Derek Chase  1:26  

That’s the short answer to today’s podcast – what do you tell your younger self is, buy Apple stock and just can’t beat yourself up like that, because you could also go the other way. I remember a joke making the rounds not too long ago was, how to become a millionaire in Kelowna. Show up with 2 million and lose a bunch in the stock market. So it can go both ways.

Wayne  1:52  

Okay, so where do you want to start for today? It’s obviously important to start early. Why is it important to start early?

Derek Chase  1:59  

I think it’s just the power of time – it’s the key part of that piece of advice. And if you’re seeing a lot of articles that say, Oh, I’m 50 years old, and I don’t have anything saved for retirement, what should I do? Or is it too late to start saving? All those questions can be avoided if you did start early.

The hard part about that, I think, is it’s just so abstract when you’re young. When we talk sometimes with people, they say, Oh, I wish I’d had this talk when I was in high school, or when I was younger. And, a lot of it probably was spoken about, but it’s just so not real at that point. 

But it quickly becomes real when you start having to deal with your first bits of adulthood. So starting early, and utilizing the power of time on your side. It is a real, real big thing that if that could just sink in, I think a lot of people would be way better off by saving that super small amount. But start early and let time be your friend.

Wayne  3:10  

I know with my kids, we really stressed, and I don’t know where I saw this stat, but it was something like if you could put $2,000 away at 18,19, 20, 21, 22 – and I think it was for about five or six years, and then not even invest anything after that you would have like a million dollars by the time you’re 65. To get that 12,000 start, you’re doing great. 

I looked back at my kids, when I was their age, I had a motorcycle to buy. Right? And your car, I wanted to buy a car. I wasn’t taught this stuff. And somebody did pass me a copy of The Wealthy Barber when I was, I believe 21. I read it, but I wish I would have acted on it. So there’s advice for our younger selves.

Derek Chase  4:04  

Yes, that’s a good point. Because even if you are doing that early savings, and I have seen that similar type of predictions and charts, and it’s true – but when you start saving early and you build up some money – you have to merge that up with the discipline to let it keep going. Because life will pull at you and want you to buy some sort of toy that, maybe you don’t need – and spend a little bit too much on that. And then it sets you back for your overall savings. So it’s a balancing act, I guess. But certainly having that nest egg there at an early age will certainly get you on a better path, then not having it there. 

Wayne  4:46  

All we could really do is teach our children and then hopefully they can teach their children and we just keep hopefully getting better and better with growing wealth.

Derek Chase  4:56  

I would agree with that. And certainly the teaching aspect is interesting. And how is the best way to start? Letting people handle money, I think, is the best way to start. If you’re a teenager today or and you’ve never really handled money or had to make choices around it – it’s going to be difficult. 

I remember hearing someone comment recently that the question was, Where does money come from? And the answer was, well, it comes from the bank machine. But you know, it doesn’t. And when you look back in time, and you think of the value of having the newspaper route, or the babysitting type of income, or even an allowance, or some very modest amount of cash flow. To manage and save, and just really make decisions – there’s some good learning processes there. So starting early. Starting with a bit of cash flow to make choices with I think, that’s part of walking a responsible financial life.

Wayne  5:57  

Do you talk about retirement, when it comes to teaching kids?

Derek Chase  6:02  

It’s hard, because it’s just so far away, and kids are immortal, in their own eyes. It’s hard to project, when you are in your teen years, or even early 20s. It’s hard to really think that far ahead and try and understand what life is going to be like, then. 

So, you can just talk about it. And, for those people that do understand it or get it, then they’re well ahead of the game. But those who don’t, it’s just going to take them longer to get going, as you mentioned in your earlier example, and be very difficult to catch up. 

Wayne  6:40  

Who Should you consult?

Derek Chase  6:42  

I think if you’re so fortunate to have someone in the financial advisor capacity in your circle of family, or friends, a CPA, or really anyone that’s got some business experience, I think those are all good candidates to talk to. And I would encourage people not to be shy about that. 

I think a lot of people that would be asked those questions would be more than willing to make some comments about what’s a smart move to do, or what’s a good thing to get ready, to help me with my finances. I think people are generous in general, in Canada, and in BC, especially generous with advice. So I think if you can get over the sort of being afraid to ask aspects of that, and actually make the ask for advice. I think it would work. 

Wayne  7:37  

I would think that it’s almost an honor for you, when you ask somebody, especially if the kids get to. Because mom and dad are one thing, but when they get to talk with somebody else about money, the person they’re asking can oftentimes feel like it’s an honor to actually have somebody young that they’re able to share just a little bit of wisdom with.

Derek Chase  7:59  

Yes, they hear mom and dad a lot. And so having that fresh voice is important. I know certainly the times that I’ve been asked by different people for just random financial questions, I’m more than happy to spend some time to give them at least what I can give them, right at that moment, without having to do any deep research. I just use some general off the cuff sort of information. And I think it’s well appreciated. 

Even basic financial information, as far as you know – tax free savings accounts, or RRSPs, or investing in stocks or, EFTPS, or mutual funds –  there’s a lot of lingo out there. And so to educate yourself about that part of the process is just asking the question. 

I’m impressed that you read the book, that’s great. The Wealthy Barber books, I recommend that to people. Educating yourself on just the terminology, will put you in a good spot. And so when you do get to the point where you’re actually making some decisions about investments, you won’t be intimidated. Doing that, you’ll understand what the person that you’re interacting with, perhaps to make that investment is saying. It takes that level of intimidation out and it’s helpful. It really is.

Wayne  9:24  

And don’t feel intimidated because there’s people that have been fairly successful and they don’t understand some of these different terminologies. In fact, just today, I was quite surprised. I was  having a conversation with somebody, and she mentioned dividends. She’s like, I don’t even know – I’ve heard of them, but I don’t really know what they are. She was in her 50s and somebody had mentioned that it helped them to retire. So really, it’s all ages.

Derek Chase  9:57  

It’s never too late. We start off with – if this has been on your mind, then start asking for advice. Start asking the questions and start reading. There’s a lot of material available to read that talks about different types of investment income. And in a similar vein you do have to have your antennas up so you’re not going to get scammed by somebody giving you advice. 

I would certainly recommend that. If it sounds too good to be true motto, it is, and you should watch out for that. But certainly doing some basic research through the library or online, and asking someone that you trust –  those are good ways to get you going. And I just can’t stress how important that is. 

Let’s take an example of someone who wants to save money. And they decide that they’re going to save money at one of our chartered banks. GIC – that’s how they’re going to do it – and they diligently did that over decades. Well, if that same person would have maybe taken some of that money and just bought some of that bank stock, it would have made a tremendous difference in their overall asset value – if they fast forward 30 years. 

So gaining that understanding, so vital. It’s not something that’s difficult to understand. And it’s not something you need a PhD in economics to really grasp. It’s getting that basic terminology around dividends, or interests or other types of investment income and where it comes from –  whether it’s tax sheltered, or not tax sheltered. These are all things that someone in their late teens can easily understand.

Wayne  11:52  

Let’s talk a little bit about different assets, and maybe what might be best. Do you want to break down a couple of those ideas for us?

Derek Chase  11:59  

Well, I think if you’re starting, it depends when you’re starting. If you’re starting with that teenage job, I think money in the mattress is fine. That’s a good place to start, just to have some cash on hand. 

And we’d like to encourage people just to build up a cash buffer of a couple months of living expenses, maybe. But then when you’re at that point, you’re saying, Well, hey, I should really start to make some longer term investments here. That’s when I think you get choosing between assets, because different assets have different time horizons. If you think you’re going to really need that money soon, then you might not want to tie up the money in a long term investment. 

So it’s hard to say for each person what the best asset to invest in might be. But I think you want to consider what your time horizon is. And if your time horizon is long, then you can be a bit more risky, and be able to put the money in an asset that you might not be able to get back right away. Whether that’s locking it in for a couple years, or I think for the person starting out, certainly, you’re getting very little interest coming now. So some sort of exchange traded fund is typically a go-to type of investment now. And the reason that they become popular is the management fees on them are very low. 

So that’s another thing to learn about in your reading. What are you paying on your management fee for that investment? And for instance, if you’re paying somebody 3% or 4% a year to manage those funds, that’s a lot different than paying someone a half a percent, or 1%. It might not sound like a lot, but when you take that out over time, it becomes a big number. 

An Exchange Traded Fund or an ETF has probably got the lowest, and then it just goes up from there. There’s different types of exchange traded funds for different areas of the economy that you can invest in. I think that’s good for starting out. If you’re further down the track and you’ve already got some investments, then you definitely want to be consulting with someone who’s got good experience in the investment area – for how to blend those different investments into different risk categories. 

So it depends, I suppose, on the asset, on what stage of life you’re at and what your time horizon is. In order to get that money to make the investments, I think another area we should talk about, Wayne is just planning – planning a little bit for the long term, in the sense of planning for a year, as opposed to a month or a paycheque.

Wayne  15:05  

Okay, what does that look like? 

Derek Chase  15:07

I asked some of my colleagues about this question. What would you tell yourself if you were in your youth about finances – and just understanding the need to plan ahead? Plan for a whole year, instead of just staying in the immediate moment all the time – because life comes at you fast, as you know, and the things that are unexpected can really set you behind. 

So just try to understand or predict what’s going to come up between now and a year from now, and plan accordingly. Because if you know that August is going to be busy with two birthday parties, and a wedding, it’s going to be expensive. Plus kids go to school in September, all those things are out there. They’re just not here today for an expense, but they’re coming. 

So it’s important to make those planning choices, and then you’re on a smoother path. I think having that predictability to your finances, and having the discipline to save something each month, starting early – I think those are all good blend to keep a person on a strong financial path.

Wayne  16:14  

And these days the banks make it easier. They can simply withdraw it for you and put it into a different account, put it into a Tax Free Savings Account, put it into anything really that you want. So it automatically comes out, you never even see that. 

And I’ve talked about this many times on this podcast. We really made a big difference in our family’s life when we calculated all the expenses for the entire year, and then divvy that up, per paycheque, 26 times. Okay, what do we need to set aside to make sure that every bill is taken care of. And that was, I wish I’d done that, 20 or 30 years ago. It would have made a big difference.

Derek Chase  16:59  

Yes, another key thing that you said there is that your family did that. And we do see situations sometimes when there’s only one person in the family that’s on board with trying to do that planning, and it’s much more difficult. If you can have your whole family buy into that, and also use it as a teaching moment for the kids. I mean, you’re way, way ahead of the pack, in that regard. So good on you for doing that as a family. And then people have that awareness and they know there’s some accountability there too – if they follow the plan.

Wayne  17:37  

Well, it’s funny, because we’re at a point here where my son is just moving out. He’s going to be renting his first place. He’s got to take care of all of his expenses with his new job. And already, I’m still sending out the little advice of – maybe don’t do the gym membership yet. Maybe don’t get the climbing membership yet. Don’t do this membership yet until you see what that monthly income is going to look like, versus your expenses. And he’s like, yep, already on it.

Derek Chase  18:06  

So he was listening. He’s listening.

Wayne  18:10  

Yes, exactly. Alright, we’re running out of time. Final advice you’d like to share with us?

Derek Chase  18:15  

You know, I think everyone can do it. And it’s just a matter of taking the time to educate yourself, doing some reading and seeking out some wise counsel. And you can do it.

Wayne  18:26  

Absolutely. Derek, always great having you on the show. Thank you very much.

Derek Chase  18:30  

You’re welcome. You have a great day.

Wayne  18:32  

My guest today, Derek Chase from Derek Chase and Associates, Licensed Insolvency Trustee. You can learn more, you can schedule a free consultation with Derek and the team at bankruptcytrusteebc.ca. 

And that’s it for today’s Debt Matters podcast. Make sure you subscribe wherever you get your favorite podcasts from and of course, if you want more information, you can always check out Debtmatters.ca Thanks very much for listening.