Reader Question – Just Starting Out

In the My Own Advisor mailbox recently I got an email from an eager young investor.  Thanks to Dylan for allowing me to post these questions.

“Hey Mark

I’m 21 years old and looking to start investing.  I have a similar goal to yours when it comes to passive income.  I am just wondering what I should put my money into.  I would also like to know how much of an investment will I need to start off.  What is a good amount?  I currently just put money into a RRSP and TFSA.  I am a beginner, where should I start?”

Well Dylan, for you and others, before I go any further I must disclose I’m not a financial expert.  My Own Advisor is not responsible for any investment decisions you make and before you make any important investment decision, you should consider consulting a professional.  That disclaimer provided, I know what I would do if I was 21 again so I’ll tackle your questions that way when it comes to what to invest in as a 21-year-old or not investing at all just yet…

1. I would pay off any credit card debt I have.  Snowballing debt is another great idea but I’m a fan of paying down high interest debt first, which usually means focusing on credit cards.  When I was 21, I was in my third-year of university and I didn’t use a credit card very much; for books, big ticket items and train tickets home to get my laundry done, that was about it.  It was cash and debit at the bar almost every time.

After credit cards are paid off every month then my 21-year-old self would…

2. Focus on paying off my student loan.  After my degree, I finished a year of college which included a co-op placement at what would become my first employer in Toronto. I needed student loans to get me through college, I recall about $7,000 in total.  After I started my first full-time job in the industry I had trained for, my focus was on killing that debt.  I took me just over 2 years after I started my job but that loan was finished when I was 25.

After the student loan were paid off my 21-year-old self would…

3. Focus on paying off my car.  I’m not sure what Dylan has or doesn’t have for a car payment but some, ahem 15+ years ago I remember it would have sucked to have a car payment when I lived in Toronto as a young 20-something.  Insurance was costly enough let alone a car payment.  I owned an old Plymouth coupe (does that brand still exist?) and after the rent was paid, bought some groceries, paid that car insurance, put gas in the coupe and after some spending money was set aside for a few wild parties, I didn’t have much cash left over.  Not having a car payment though allowed me to have some great years enjoying Toronto which allowed me to start working on priority # 4 in my mid-20s…

4. Start investing in my RRSP.  I opened my RRSP account when I was 24.  I didn’t contribute much early on but after the credit cards were under control and the loan was nearly dead, I started contributing $50 per month to this account.  Based on the big-bank advice I received at the time I put my money into two big bank mutual funds – a Canadian bond fund and a Canadian equity fund.  Since opening this account, I haven’t stopped contributing to my RRSP thanks to some great early advice although some contribution years were leaner than others.

Many years later Dylan, I’m still investing, in the RRSP and other accounts.  Thanks to the TFSA, I now have another retirement tool at my disposal.  I also have a fat mortgage, that’s another big priority.  At our current payment rate, if things go well, this mortgage will be non-existent in 9 more years.  It’s our highest interest debt, so in a way, history has repeated itself – it’s a big part of what I focus on today.

Dylan, if you’re lucky enough to have NO credit card debt, NO student loan debt or ANY car payment at 21, I think you’ve done very well and you’re ahead of the game as they say.  I certainly wasn’t in your position at 21.  As a young 20-something the world of investing is an open door to you, to pay yourself first in your TFSA or RRSP account or create a savings account.  I won’t revisit the debate of picking one account over the others but ANY contributions to these accounts are excellent in my opinion.  If you can afford to pay yourself first today, do it and keep doing it.  Whatever account you choose to contribute to, at 21 you have the luxury of taking your time, reading some great personal finance and investing books and establishing your financial plan long before most.

Thanks for your question and good luck with your plans.  See you around my blog.

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8 Responses to "Reader Question – Just Starting Out"

    1. Thanks Steven. It will be interesting to see if this reader checks back in with me. I definitely made some investing mistakes in my 20s, but hopefully, I’ve learned from most of them now into my 30s. I’m sure I’ll make more though, just hopefully less of them :)

  1. Outside of debt payments, I would spend a lot of time reading about investing and deciding what your investment style will be and how much effort you are willing to put into managing your investments.

    If you’re willing to put effort into research stocks then individual stock picking may be for you. If not, then you should probably stick with index funds.

    1. Yeah, I would do the same. Unfortunately I didn’t start really reading up on personal finance and investing until my early 30s. I wasted a good decade of investment potential.

      I hope our 21-year-old friend takes time to read, understand and educate himself. In a few short years, he could be really off to the races and be a wise investor much sooner than most.

  2. This is great advice! I didn’t have any credit card debt, but did have 14K in student loans. I paid it off within a year of working at an investment firm. One advise I would give to new grads: If you can stay at your parents in order to save money, DO IT. My mother welcomed me with open arms and after 2 years I had paid off my student loan, had contributed to my RRSP, and saved 30K by the time I was 24. Of course, I didn’t own a car because I lived in Montreal and public transportation was a great. I suggest tackling credit card debt then student loans. If you can pay more than the minimum, you should do it.

    Mrs. Dibidend

    1. Absolutely agree for young kids: tackle credit card debt then student loans. Better still, have no credit card debt when you can have a PLC if you really need it for the cost of 6% or less (compared to 18%+ credit card debt).

      Thanks for your comment.


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