Ah! Not enough articles about how you should save and invest money when you are in your 20’s? I decided to write this article because some of my younger readers asked me to. But I bet you don’t want to read another article full of basic investing advice for young professionals, right? So, here’s the deal, I’ll start with a bunch of “classic advices” just in case this is the very first article you read about investing. Then, I’ll go with investing tips I used as a young investor.
The Basic Stuff
I already wrote some very good articles about various basic investing topics. Therefore, instead of repeating myself, I’ll just leave you with some bits of knowledge I previously wrote. Click on each title to learn more about this specific advice.
Let’s start with 100 investing lessons in 5 minutes (oh yeah!);
Now my best and worst moves as a young investor;
Wanna start investing? Here’s how you can start investing with $100/month;
Here’s how you can grow your income very fast to save more than $100/month (I did all those tricks);
Time in the market is everything… really everything!
Want to reach $1M? here’s how you do it;
Want to get rich faster? Here are some investing accelerators;
ETFs or Dividend? I always pick the latter!
Currency (CAD or USD) doesn’t matter at all.
Finally, Ignore bitcoins;
I said: Ignore Bitcoins!
You want more? Here are a few real tricks you should definitely consider if you are a young professional and looking to save some money.
01 Consider Leveraging
Let’s start with a super controversial topic; borrowing to invest. Before you get your box of tomatoes ready to be thrown, consider this:
- You borrow money to buy a car (or worst, you lease it).
- You borrow money to buy a house (and then spend years paying it back, thousands to assure a proper maintenance and lots of energy cleaning it!)
- You borrow money to go to school (and it usually pays off!)
Those are just common examples of financial decisions you make when you think borrowing money is a good thing. Let’s add another one; borrow money to invest.
The whole point is not to enter in an investment loan of 100K tomorrow morning. That’d be stupid. However, if you borrow a few thousand to invest money, two things will happen:
#1 You will be forced to save (as you will be forced to pay back this loan).
#2 You will start investing today (instead of waiting for “having enough money to invest”).
The whole point is to get you started right away and force you to save in a “reverse” manner. Instead of putting money in a savings account, you use a monthly payment to pay off your original loan while your money is already invested. This also allows you to use leverage the right way; never borrow more than you can pay off with your budget.
Between the age of 23 and 26, I used leverage twice. At 23, I had my first job in a bank and I had virtually no debt and very little monthly expenses. I decided to borrow 25K over 5 years to buy a piece of land. Then, I borrowed 20K on a line of credit ($19,500 to be exact) and invested this sum in the stock market.
At the age of 26, I sold my two assets. The profit made on the land was about 40% over 24 months (since I used borrowed money, my capital required was minimal). I made even more with my investment as I used my portfolio as a cash down for my first house. After I paid off the line of credit, I had about 50K left in profit.
02 Start a side-gig
You are young, you are smart, and you are full of energy. Most importantly, you have more time than you can imagine. Therefore, cut down your binge time and social networking and get yourself a side-gig. In an ideal world, you would start your own side project where you can make money when you have free time. But you can also work part-time at a second job and use this extra money to invest.
While I was at university, I used to work about 30 hours a week. I was delivering bread in grocery stores. When I got my first real job, I kept the bread delivery on Saturdays. I was working 6 days a week, but that extra money was used for my borrowing strategy. Plus, if I were ever to lose my “real job”, I would always have something to fall back on.
Then, in 2008 (at the age of 27), I actively started making money with websites. This was another side gig I started with my best friend. 10 years later, this side-gig is now my business and it generates enough money to support a family of 5, and we already have one full-time employee!
03 Invest right away and make mistakes
You can probably read thousands of books and blogs and spend 5 hours a day on investing websites; you will never learn what really matters: losing real money hurts. You can imagine the pain, but you can’t feel it. This is why you must start as soon as possible to invest, and eventually you will make your first mistake. Once you lose hard earned money, you will be eager to read financial advice differently and actually apply it in the future!
It took me 4-5 years to make my first investing mistakes. Since I started at a good time (2003-2008 was a great bull market), pretty much all investments were making money. This was until I decided to invest $10K in a single penny stock. I was the king of the world…until the mining company I invested in plummeted as it didn’t find any gold. I lost $5K from my original investment in a single day. This happened more than 10 years ago, and I’m still able to feel the void inside myself when I came back from lunch, refreshed my online portfolio and saw the 50% drop.
After this adventure, I decided to sit down, read carefully and build a solid investing process.
04 Maximize your financial structure right away
When we are young, we think that we have all the time in the world to setup our financial structure. Since this step is especially boring, nobody wants to hear about tax saving tips and estate planning. We all want our money to go out, travel, buy cool stuff. Investing in a will or participating in our employer’s shares benefits account sounds like a waste of time. But if you get your structure straight, you will be saving hundreds (and thousands) of dollars yearly. Without having to do anything!
This is the key. If I give you $1,000 per week and tell you to put $200 aside, it will get tricky if you have a bad month. You will constantly be tempted to use the full $1,000 since it goes into your account. Imagine that I give you $800 per month instead and the $200 is automatically put aside without going through your bank account. You will just get used to spending/managing $800 per week, and you will forget about the extra $200 you could have spent.
When I started at the bank, my boss almost forced me to use 8% of my salary to buy shares of my employers. The deal was simple; I put in 8% of my salary, my employer adds another 4%. Then, he also instructed me to never touch my bonus and always put it in a RRSP (a retirement account). As my employer was already offering a defined benefit pension plan, I was saving more than 20% of my income without realizing it.
By getting my financial structure right at first; I also subscribed to a life insurance policy and had my will done early. My life insurance is a real deal as I pay pennies compared to how much I would pay if I had to subscribe to the same insurance today. As for my will, my wife and kids would be quite relieved if anything would happen to me.
05 Final advice: Invest in what you know
This will be difficult since all millennials know everything… hahaha! Just kidding! This final piece of advice isn’t coming from me but rather the father of patient investing; Warren Buffett. The whole point of investing in what you know is to be able to write down a strong investment thesis. Numbers and financial analysts can tell you many stories, but if you don’t get it, if you can’t tell your own story about this company, you will never make money on the market.
I let go of many great and not so great investing possibilities throughout the years. Any time I wasn’t able to fully understand how the money was made or how the business was growing, I just dropped the ball. Keep in mind there are thousands of different companies you can invest in. Why bother with the ones you don’t get when there are hundreds that you will fully understand? Keep your investment simple; you’ll make more money!
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