Big problems and big opportunities for millennial investors
I think being a successful investor is simple but not easy.
I think being a successful millennial investor is even more difficult. Let me explain.
Millennials have some big problems and headwinds when it comes to money:
- Some have significant amounts of student debt.
- They thrive/thirst for homeownership, which is very costly.
- Boomers remain in the job market, they are competing with Gen X; so good jobs with good incomes are hard to find and retain.
With that doom-and-gloom I believe there are also some big opportunities for millennials:
- Unlike me investing time is on your investing side; you have 20-30 years of investing before any retirement plans.
- FinTech is here! Hassle-free investing is here with firms like ModernAdvisor – to help you save more, spend less on fees and grow your portfolio in a diversified way.
- Money management costs have never been lower – ETFs are the new mutual funds but without the higher fees of active money management – ETFs can be great products for all investors.
I wanted to validate these problems and opportunities so I reached out to a millennial who is in debt but also saving and investing his way out of it. Enter Matthew.
Welcome to the blog Matthew.
Thanks for having me Mark!
Tell readers about yourself…
Well, my name is Matthew and I am in my mid 30’s. I live in a small-town east of Toronto. I have a blog called All About The Dividends which I started in February 2016. Up to this point it has been an investing blog, but soon I will be adding some personal finance posts to it as well. I am currently in the process of improving my finances and boosting my retirement income.
Matthew, may I ask what your current debt load is and how you got into it?
Sure, no problem. I wish I could tell you that I’m debt free but that is not the case. I currently have $15,600 owing on my car. My car is the only debt I have though. Last year I took out a $10,000 loan on my line of credit and used the funds to invest in my TFSA. I paid that loan off this past April.
I got into the debt for the car because at the time of purchase I had an SUV that was only a couple of years old, it was not paid for, so when I traded it in what was owing after trading it in was added onto the cost of the new car. On top of that I financed the car for 8 years to keep the payments low – not ideal. Since purchasing the car in 2014 I have changed my attitude towards personal finance. I am making it a goal to have the car paid for by the end of 2018 – four years ahead of schedule.
Good work Matthew. OK, so do you have a budget? If so, how did you create one and how do you manage it?
I don’t really have a budget. I do have two wonderful parents who thankfully allow me to still live with them which is a big help to me! I currently only have three fixed expenses: my rent to them, a car payment and a cell phone payment. With my first pay of the month I take care of the rent and car payment. With the second paycheque I also take care of the car payment (car payment is bi-weekly). Any money I have left over I pay down the car more, I put in a fun account (buy whatever I want or need), I use for an emergency fund, I use for investing (bi-weekly contributions).
So as a millennial who is in debt, what are your thoughts on emergency funds?
I think emergency funds are extremely important. You never know when your car will break down, for example. If I was asked this question a couple of years ago, I would have said having money just sit in an account doing nothing is a waste. Now I believe the total opposite. If you have a big unexpected expense you can use the emergency fund to stay out of debt and avoid paying interest on your debt.
I do have an emergency fund. At the beginning of the year I had $2,500 set aside. In January, I decided to increase it to $10,000 by the end of this year. I am very thankful for it, because in May my laptop died. A week later I found out I needed new brakes for my car. Having my emergency fund saved me from going into more debt. I wouldn’t have thought this way before.
Let’s talk about HUGE debt. What are your thoughts on home ownership? Do you want to own a home eventually? If so, why?
At this moment home ownership is unattainable for me. For the time being I have given up the thought of owning a home. This is due to my current financial situation and the price of homes. I seriously don’t know how people can afford some of the homes they are buying. I live about an hour east of Toronto and even these prices are crazy high.
I would like to own a home eventually. It would be nice to have a place to call home. I feel that home ownership is a good investment since I’ve seen property values go up (a great deal!) over time.
In my 20s I used to think life insurance was for ‘old people’. As a 30-something what’s your take on life insurance?
I think I had the same thoughts as you. I currently don’t have life insurance, I am single and without kids so I don’t feel the need for it. As I continue to educate myself on all things personal finance I may change my opinion in the future.
With the Boomers not wanting to retire yet, Gen X striving to keep things above water, and now Millennials striving to get ahead the job market is saturated – good jobs are hard to find. How are you coping?
Good jobs are hard to find especially where I live. In my area I am seeing more and more minimum wage jobs appear, and the well-paying jobs slowly disappear. With the Province of Ontario announcing that the minimum will be rising to $15 per hour (from current $11.40) that should help a lot of people.
I currently work as a full-time security guard for a local company. In an effort to increase my earnings back in January I picked up a part-time job. So at the moment I am currently working seven days a week.
At the moment I am going through the interview process for a local factory that offers good pay and benefits. Fingers crossed I get it.
I believe this is a great time to be an investor. What are your thoughts on investing? How do you invest? Where do you go to learn more?
This is certainly a good time to be an investor, we have been in a bull market now for the past 8 or 9 years. I am a dividend investor. I buy and hold stocks that pay and grow their dividends. In fact July marked my 3rd anniversary as a dividend investor. I am currently invested in 25 stocks and 1 ETF.
I love to read The Globe and Mail I believe they have a really good investor section in their paper. I also read other blogs such as yourself, Roadmap2Retire and Tawcan. I learn from what you have done.
Well, I’m not perfect Matthew but that’s great you follow. Last questions. What’s next for you? Saving more? Growing your income? Other?
I have three things planned. The first, build up my emergency fund. Second, invest more in my TFSA as I got quite a bit of contribution room left. Third, pay off my car. I really want to become debt free.
All good things Matthew, especially those three, I wish you well and thanks for being a fan of this site.
Matthew’s challenges (and opportunities) are likely no different than many other millennials – which brings me to this. Here are some thoughts about what most of us should avoid when it comes to money:
- Budget fails
Debt and budgets often go hand-in-hand. Develop a budget and keep one. The earlier in life, the better.
- Embracing debt
Ignoring debt and not understanding debt will be problematic for you. Embracing massive amounts of debt (for most people) will sink your long-term financial health.
- Ignoring investing
Don’t put off investing until your 30s (although better late than never). Investing can grow your money in a way that cash savings never will. Consider investing inside a TFSA as much as possible – it’s not just a savings account. The best time to invest was always yesterday.
Do you think Matthew’s journey is typical for most millennials? What do you make of Matthew’s three (3) focus areas going forward? What advice do you have for him and other 30-somethings?
Thanks for reading.