Young Investor’s Guide to Building a Financial Future- Getting Started

Part 1

The future looks bright for younger investors. A 2024 analysis by the Investment Company Institute found that, adjusted for inflation, Gen Zers have nearly three times more retirement assets than Gen Xers did at the same age. That’s a seismic shift, and we would propose it’s largely due to improvements in the retirement system. For instance, company mandated defined contribution plans- think RRSP’s and employee stock purchase plans are more common, providing you with a relatively easy way to start and build your savings.

Even so, if you’re new to investing, it can be tough to know where to get started. There’s so much information and advice out there, it’s hard to know which of it makes sense for you. The good news is that getting familiar with a few basic principles can help you see past the information overload and set you on the path toward a healthy financial future.

Let’s jump-start your efforts with six important concepts for young investors to know about.

Avoid the Vicious Cycle of Credit Card Debt

The debt you carry directly impacts every facet of your financial life. Put plainly, every dollar you put toward paying down a credit card bill or car loan is one less dollar that can grow to benefit Future You. That’s why minimizing bad debt is the first step toward building a strong financial future. 

Note that we said “bad debt.” The truth is, not all debts are bad. Low-interest student loans, for instance, can help you receive the education you need to follow a rewarding career path and earn income. And reasonable mortgages can help you buy a home and build equity. On the other hand, high-interest credit card debt can quickly become very expensive - and severely hamper your ability to make other, more important financial moves such as saving and investing.

Why is credit card debt so bad? Credit cards are a form of revolving credit; they allow you to carry a balance from month to month. If you can pay your balance off every month, you won’t owe interest. But if you carry a balance, you’ll pay interest on that balance - often to the tune of 20% or more. That interest will be tacked on to your total bill, which will then continue to accrue interest.

What’s more, credit cards allow you to make minimum payments equal to a percentage of your total balance. If you get in the habit of only paying the minimum every month, your debt load will only grow greater over time. Using this Bankrate calculator, let’s say you have $1,000 in debt on a credit card with a 20% interest rate. If you only make minimum payments of 2%, or $20, per month, it will take you 195 months - more than 16 years - just to pay off this single debt. And in that time, you will have paid $2,126.15 in interest - more than double the amount of your original debt.

In short:

Use high-interest debt carefully, and if you can, only use your credit card when you know you’ll be able to pay off your balance by the statement due date. That way, you’ll avoid getting trapped in a cycle of debt, and you’ll have more cash available to meet other goals, including investing for your future.

Interested in learning more about how to take the first steps toward meeting your personal financial goals? Reach out to set up a time, and let’s talk.