Think back to when you were 18 and just finishing school. What were you doing? Working at maccas? Heading down to Dunedin to
get steamed every night really get to grips with Health Sci?
Myself, I was playing internet poker full time and I playing drums in a band called “Nuke the Whales” (it’s a Simpsons joke) and had AWFUL shoulder length hair.
Whatever you were doing, it’s likely you weren’t too focused on your financial future.
Today’s 18-year-olds are probably no different except they probably have more nagging financial worries in the back of their heads, thanks to us loudly panicking millennials.
How am I going to pay off my student debt, literally before I even start uni? How can I afford to rent someplace that’s not a mouldy cardboard box? How can I afford to travel?
These are all absolutely valid worries – it’s really tough being a young Kiwi. However, at MYFK I’d rather come up with solutions rather than sitting at home crying into my avocado toast.
Today, I’ve got some tips for the 18-year-olds out there on ways to ensure their financial future is (hopefully) stress-free.
NUMBER ONE ULTIMATE BEST EVER TIP: INVEST!
But investing is for old rich dudes. It’s lame/too hard/pointless/takes up way too much time/risky when you’re young.
The thought of people thinking this genuinely makes me want to break down in tears at their feet sobbing “Please, please just think of the compounding returns”
It’s absolutely possible to invest successfully and make a great long term return, all without having to put too much time into it or having to take crazy risks.
All you need to do is buy into ETFs (exchange traded funds) which track whole sharemarkets. These include the NZX50 (50 of the largest companies in NZ) or S&P500 (500 of the largest companies on the US stock market).
I go into this in a biiiiig way in my article The Best Way for Non-Millionaires to Invest, but here’s the quick lowdown.
Stock markets generally produce great returns in the long run (7% yearly or more over a long period) but are super up and down over the short run. Most investors hurt themselves by buying and selling too often and trying to predict what will happen in the sharemarket.
The best thing a regular person can do is just to buy and hold funds which track whole markets. This means they
- Have great diversification (i.e. own a part of lots of different companies) i.e. if one company decreases a lot in value, you won’t lose everything.
- Pay low fees. This means you get to keep a greater percentage of your returns!
Time is on your side – COMPOUND INTEREST, GUYS.
When it comes to investing, the biggest thing in your favour is time.
Let’s compare two people; say my younger brother Blake starts investing when he’s 18, putting $100 a month into an index fund. He stops investing in 10 years when he’s 28.
The other person starts when they’re 28 and invests $100 a month for the next 30 years.
Both get a 7% annual return.
Who would you expect to have more money in this scenario?
Surprise! It’s Blake! He’ll have $17k by the time they’re 28, and even if he never invests another cent, it’ll grow into around $138k by the time he’s 58.
The person who started investing when they’re 28 will only have around $122k when they are 58, even though they invested for three times as long!
This happens due to the magic of compounding returns. When investing, you get returns on your returns which means they grow at an increasing rate.
How to not spend all your money now
I get that it’s really tempting to spend up all your money as soon as it gets into your bank account – especially when, perhaps for the first time, you’re under no parental restrictions. Lame suggestions like “You don’t need the deluxe edition of a PS4 game you already have two copies of” or, “You can’t have an alpaca in the backyard”. Talk about restricting human rights.
I like to reframe the idea that not spending all your money now is a sacrifice, instead, think of it as keeping your money for you. By investing your money now, you’re helping your future self travel, pay off debt and even buy a house one day if you want.
Think about it, you worked hard for that money, don’t just chuck it away! Having money for the big stuff you’ll want later is a lot more meaningful than a pile of crap that seemed cool at the time. Looking back as you get older, it’s also low-key devastating how much you realise you’ve spent on unnecessary things.
I’m definitely not going to tell you to not buy that $6 small avocado or that $23 fancy lemon meringue cocktail, or even not to upgrade to a flash phone (but maybe you don’t need to spend $2k, *cough* the new iPhone *cough*). You have to enjoy your life, too!
Just make sure that your money is working as hard for you as you are for it.
But it’s so hard and dumb and complicated and I don’t have the time!
It’s never been simpler, easier or cheaper to invest as a Kiwi. You can pick a good provider, and a couple of ETFs, lock in a plan (automatic payments are your friend) to invest a certain amount each month, and then you’re set. You can kick back and relax, knowing that you’ve done something awesome to set up your financial future.
As a note to automatic payments, I suggest having your saving or investing money be direct debited out of your account on the same day you get it. This way you won’t even miss it.
The biggest risk is not investing at all. You risk the things you’re gonna want getting more and more expensive, and you getting further and further away from being able to have them!
If you think this might benefit the young people in your lives, share this with them! Let them know what they can do for themselves if they just set aside a little each month to invest.
If you’re interested in learning more about passive investment providers in NZ, check out some of my articles below:
- My thoughts on the Sharesies Beta
- Dean from Smartshares answers your questions!
- I chat with Anthony from InvestNow
- Breaking news: Simplicity releases new Investment funds
- I compare the fees of Smartshares and Simplicity
- Smartshares compared to Simplicity: Part two
Or, If you want to learn more about general investment strategy, check out one of the articles below: