# 18 year old looking for some financial tips



## meow (Jun 10, 2009)

Hey everyone, I recently turned 18 and decided that it was time I started taking my finances seriously. What I'm looking for is some advice or tips on saving or investing money, where I should be putting my money, and stuff like that. It'd be great if you could share any mistakes you've made in the past that young people like myself are particularly prone to so that I can avoid making them in the future 

I currently have a chequing account at CIBC with around $1000 in it and a savings account at a credit union (which I use exclusively for very rare credit card purchases - online stuff like concert tickets and clothing) with just over $700 saved. I have a part time job which pays ~$550 into my CIBC account every 2 weeks, from which I pay $150 into my savings account. Is this a good strategy?

Thanks in advance!


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## FrugalTrader (Oct 13, 2008)

18 and on the right track! Congrats!

If you plan on going to higher education, try to stay out of debt! As well, start your reading on how to invest properly. If you start early, your investing timeline will be a major advantage.


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## Ben (Apr 3, 2009)

First, congrats on having your head screwed on straight. You'll do fine.

1. Minor point - it sounds like your credit card is somehow connected to your savings account. Why not pay the credit card from the chequing account, and keep some distance between the "savings" account and the chequing account, so the savings can truly grow untouched? You've got the right idea making regular transfers from chequing to savings, just try not to touch it once it's in there.

2. Good work on having a credit card already. Use it responsibly, and always pay it on time. If you are late with payments, your credit score will suffer and you will have a hard time qualifying for car loans and mortgages later.

3. I lived in shared housing during school (rented a room in a student house), and bill payment is always an interesting arrangement. It can be a good thing to have your name on the utility or phone bill to build up your history of using credit responsibility, but make sure you are in control of paying the bill to ensure it's paid on time (or at the very least make sure the house treasurer is responsible and paying on time - physically verify). 

4. Start to track how much you earn, and how much you spend. This is a powerful and simple way to control your expenses. Perhaps learn Microsoft Excel, to start. 

5. Consider investing in your skills or education. University, college, trade school - it all increases your "human capital", and future earning capacity.

6. Start to learn about investing. Lots of good tips on both administrator's blogs, and in this forum and elsewhere. Keep it simple, until you have the experience and wisdom to be able to tell the difference between good advice and bad advice (you will find a lot of the latter out there).


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## Rickson9 (Apr 9, 2009)

I would start reading some books.


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## lb71 (Apr 3, 2009)

Rickson9 said:


> I would start reading some books.


Perhaps you could recommend some books?


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## canadianbanks (Jun 5, 2009)

Stay away from debt and save as much as you can. As for what to do with the saved money, first find out what your risk tolerance is, and then you can decide what kind of investment(s) is best for you.


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## byronbb (Jun 7, 2009)

The fact that you are thinking along these lines at 18 puts you into 1% of the population so you are doing something right already. The most important thing is how much you spend, not really how much you save.  Most people are beset with a borderline fetishism for "stuff", if you are free of this illness then things will fall into place. Don't however take hoarding your money too far, money is made to be spent, being a miser is no fun at all.


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## The_Number (Apr 3, 2009)

lb71 said:


> Perhaps you could recommend some books?


I'm assuming that you are headed for a university:
- Financial Basics: Money Management Guide for Students
- Getting the Best Out of College: A Professor, a Dean, & a Student Tell You How to Maximize Your Experience


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## takingprofits (Apr 13, 2009)

At your age you may as well start thinking about investing in stocks and bypass a lot of the time-wasting many of us did. I would suggest reading some of Derek Foster's books to give you an idea of what you can work towards. Frugal Trader gives a good review at 
http://www.milliondollarjourney.com/book-review-the-lazy-investor.htm


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## stephenheath (Apr 3, 2009)

The one thing that I regret that I did not do that I wish I had is to get in the habit of putting 20% off the top into savings (10% for retirement, 10% for things like houses, cars, vacations) right off the bat when I wouldn't miss it... down the road I changed my lifestyle to start doing it, but if I had been doing it from day one, I never would have become used to an unsustainable (if I ever want to retire) lifestyle


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## Elbyron (Apr 3, 2009)

Avoid renting, unless you're only going to live there for a year or two. Rent money just goes down the drain, but mortgage payments pay down the principle, giving you equity that will be worth cash when you sell. Plus real estate typically increases in value in the long run, so owning a home is a kind of tax-free investment (whereas rent is just an expense). And a mortgage can help build your credit rating too.

If you still live with your parents and have the option of staying there for a while longer, I would strongly suggest you do so. This will give you time to accumulate a 20% downpayment on your first home. I moved out when I was 23 (after I was almost finished University), and bought a downtown condo using my savings to put 30% down. I applied further savings towards the mortgage and had it paid off in 3.5 years (I had a better job by this time). And while I lived there, the condo's value also doubled. This year I re-mortgaged the condo, rented it out, and bought a big beautiful half-million dollar house with my fiancee. 

My biggest financial regret is that I didn't start an RRSP early enough. My income was still low so I figured it made more sense to pay the income tax while the rate was still low. But then they introduced the RRSP Home Buyer's Plan just before I bought my condo, and I wasn't able to take advantage of it because all my savings were in non-registered investments.


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## The_Number (Apr 3, 2009)

Elbyron said:


> Avoid renting


I'd have to disagree on this. The choice depends so much on the local housing vs. rental market, availability, mortgage rate, life style preferences, etc. in addition to the number of years you intend to live.

For example, I wouldn't recommend taking a huge mortgage with little downpayment that chokes your cashflow. Not only will you be miserable but the limited cashflow makes it easier for you to fall off the edge when something goes wrong, possibly leading to foreclosure (back to square one). If you can find a reasonable rent that allows you to save a lot of money, it may make more sense to rent than to buy. 



Elbyron said:


> My biggest financial regret is that I didn't start an RRSP early enough. My income was still low so I figured it made more sense to pay the income tax while the rate was still low.


For that exact same reason, I recommend TFSA before RRSP.


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## Elbyron (Apr 3, 2009)

The_Number said:


> I'd have to disagree on this. The choice depends so much on the local housing vs. rental market, availability, mortgage rate, life style preferences, etc. in addition to the number of years you intend to live.


You're right, other factors are involved with the choice, but from a purely financial standpoint, it's almost always better to buy when the intent is long-term ownership. Perhaps some cities have a different housing market and rent can be cheap enough to be worthwhile - but that's not very common around here (Edmonton).



The_Number said:


> For that exact same reason, I recommend TFSA before RRSP.


Yeah, I wish we had TFSA's 10 years ago, I definately would have maxed it out each year. So I would also recommend to the OP that he ask his credit union about their TFSA accounts, and get those savings under a tax shelter.


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## specialk (Jul 14, 2009)

Avoid debt like the plague, and by extension, avoid the myth that your credit score is your provider. Yes it is good to keep a good credit score to buy a house, but do not go into debt for the sake of increasing it etc. A credit score is a tool that helps go into debt....then you go into debt to get your score up so you have the right to get further into debt..rinse repeat. Then you wake up one day wondering why you have no money saved...it's because you spent all your money on payments to the credit cards and car payments....not smart.
approx. 75 percent of the surveyed Forbes 400 agreed that the best way to get and keep wealth, is to get and remain debt free.

Buying a house is a great investment idea for the future, but do not just dive into it because the math sounds cool. Broke people should not buy houses, this causes foreclosures etc. You are doing awesome, just keep piling up your cash until you have a substantial amount of money that would be comfortable for large emergencies, then start building your down payment on a house. Before you worry about any of that though, you should first make sure the career side of your life is stable. Using your credit card is ok, but only if you are making the payment for the item to the card BEFORE making the online purchase or whatever. Don't get trapped into a life of debt because they are offering air miles and a free hat.


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## Serviss (Jul 15, 2009)

*If you or anyone else for that matter does get a mortgage*

Make sure you know what options you have when it comes to lender (bank) supplied mortgage life insurance. You do not have to take the garbage they offer you. You can go get your own 10 Year Term policy and save potentially a lot of money... This savings can go towards further debt payoff or increased life style spending. 

If you would like a good example of the comparison between a bank supplied life insurance policy on a mortgage and a open market sought 10 year term policy... please go to:

www.serviss.ca/mortgagelife.html

Enjoy
Kelowna BC - Financial Adviser


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## stinsont (May 29, 2009)

Talk to a financial advisor and buy The Wealthy Barber. I read it when I was 18 or so and it help me get started in investing. Dollor cost averaging is a great tool for a young investor.

http://www.amazon.com/Wealthy-Barber-Updated-3rd-Commonsense/dp/0761513116


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## Jon Chevreau (Apr 4, 2009)

My financial novel, Findependence Day, is aimed at young investors just like you, and those in their 20s getting married, buying houses and having their first children.

In a nutshell, spend less than you earn, use the surplus to eliminate debt, then keep being frugal and use the surplus to build wealth. 

First chapter and other free material available here, plus a special price through this web site:

http://www.financialpost.com/fd


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## George (Apr 3, 2009)

Elbyron said:


> Avoid renting, unless you're only going to live there for a year or two. Rent money just goes down the drain, but mortgage payments pay down the principle, giving you equity that will be worth cash when you sell. Plus real estate typically increases in value in the long run, so owning a home is a kind of tax-free investment (whereas rent is just an expense). And a mortgage can help build your credit rating too.


Real estate might "typically" increase in value, but plenty of people who bought homes in Edmonton in 2007, even with a large down payment, are now underwater on their mortgages. Real estate doesn't always go up, and can actually go down or stay stagnant for very long stretches of time.

I agree that owning a home can be a good long-term financial decision, but only if you have enough free cash flow to pay the mortgage, property taxes, utilities, repairs/maintenance, etc, and still have enough left over to live. I wouldn't recommend that somebody buy a house unless they had a minimum of other debt (ideally none) and if the mortgage payment will be less than 30% of their take-home pay.

If you think that rent money just goes "down the drain", take a look at a typical mortgage amortization table. For several years at the beginning of a mortgage, the vast majority of the payments go toward *interest*, with only a small portion going toward reducing the principal. That interest money is "down the drain" just like a rent payment, except instead of renting real estate, you're paying rent to the bank for the use of their money.


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## Serviss (Jul 15, 2009)

Well put George, if you need another example...look into the Kelowna BC real estate numbers. Back in late 2007 and 2008, when waitresses at Joeys and Cactus club were giving patrons real estate investing advice that is when people should've known it was the top... I recently read an article on the upcoming (Fall 2009) US mortgage situation and you may want to have a look.

Upcoming Mortgage Wave Article

60 minutes also had a great video...


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