Kevin, from Canadian Money Forum, started a forum topic asking for advice on his financial situation.  Check it out:

I’ve chosen to write this topic in order to have an idea about what you would do in my situation. I’ve read most of the MDJ blog, as well as several other websites, but the more I read about it, the less confidence I have to actually do something. With the current economic crisis, this could easily turn into one-of-a-lifetime opportunity, and staying on the sidelines isn’t a valid option.

Here is my background:

I recently turned 22 and am working in downtown Montreal at a job paying me $33k/year. I currently live in a 4 and a half appartment at $630/month and I’m renting a room in it. I’m single and don’t have any kids. Here are my assets: 36000$ in cash rotting in bank accounts, a car worth about 3000$ now. I don’t have any RRSP, no TSFA ( Yeah, I really need to get one! ). I just started out a non-registered account at work, a stock offering at 2% matched by the company, which I took. The company doesn’t pay dividends and the growth seems limited. In any case, that account has virtually nothing at the moment.

My liabilities are a student loan of 16000$ currently at 3.3% ( not locked ). My budget averages out on the course of the year at around 400$/month free. It may be higher as I don’t take into account tax returns, etc.

My goals in life : I don’t have any particular goal at the moment. I would like to retire early, although I don’t expect to have any expensive hobby during the course of my life ( although that may change, but knowing myself, it’s unlikely ). I currently don’t want kids until I’m maybe 27, and by then, I’ll see if I want any or not. I’ve looked to buy real estate in Montreal ( a condo where I could rent a room, a duplex or whatever ), but by the time I started looking them ( around the same time last year ), prices don’t seem to have went down at all. I’m not the handy type of person also.

I’ve looked into Reits, but with the real estate crash ( and from what I’ve read, the crash is likely not at the bottom yet ), I’m more or less afraid to see Reits with interesting yields ( 5+% ) go bottom-up. I’ve looked into dividend stocks, mainly banks. But, with the RE and credit crisis worsening, is it safe to invest in them? I’m not afraid of them going bankrupt, but more like seeing them reduce dividends greatly, bringing the stock prices way down.

I’ve looked quickly bonds, but they’re not really interesting due to very low yields. With the upcoming inflation that is likely coming, RRBs could be an option, but I would need to read more about them. I’ve also looked in starting my own business over the Internet ( I have tons of free time at work (2-3 hours a day), but I haven’t found anything that could work, most ideas I’ve had being already realized, and free to the general public.

That’s pretty much a good summary of my situation right now. Knowing this, what would you do if you were me?

After reviewing Kevins financial profile, it appears that he’s in great shape.  Having $36,000 in cash from a single 22 year old making $33k/year is quite the feat.  Here is what I would do:

1.  Pay off the Debt

To begin, even though the student debt is at a fairly low rate right now, it is floating, so it could go higher in the next couple years.  Even with the low rates, paying off the debt would provide a return much greater than idle cash in addition to freeing up more cash flow.  Besides the financial benefits of paying off the debt, there is the psychological benefit of “freedom” when outstanding debt is eliminated.

2. Save for your goals

Kevin mentioned that he is interested in buying a house in the future.  One thought would be to start his RRSP so that he can take advantage of the RRSP home buyers plan in the future.  As Kevin is currently in the lowest tax bracket, I would suggest to claim the tax deduction in a future higher income year.

An alternative would be to use a TFSA for his savings or a combination of a TFSA and RRSP.  At least that way, he would have access to some cash without having to worry about being taxed on the withdrawals.

3. Get Rid of Company Stock

I would get rid of the company stock.  The reason is that too much of Kevin’s wealth would be tied into the one company as it’s his main source of income.  One strategy could be to exercise the company stock options immediately upon receiving them (if they are in the money).  Note though that this would generate tax payable in the form of capital gains.

4. Build a Portfolio

Once he has money set aside for his immediate financial goals, then it’s time to start building a long term portfolio.  What should he invest in?  For most investors, the best bet would be to index.  I know, I know, I don’t entirely practice what I preach (only a portion of my portfolio is indexed) but indexing really is a smart (and passive) way to invest for someone who doesn’t watch the market all day long.

Investors can index via mutual funds or ETFs.  Mutual funds can be cheaper if investing small amounts per month, but ETFs have lower MERs overall.  A popular, and cheap, set of index funds are the TD e-Series.  For ETFs, you can check out my low cost diversified ETF portfolio.

5. Start a Business

For a young (and single) guy like Kevin with some free time on his hands, I would definitely recommend going into business.  As he seems to be Internet savvy, I can suggest what I’m doing.  That is providing free content and adding value to an audience about a subject that he is enthusiastic or even passionate about.  Not only can this be fulfilling, it can pay for beer, diapers or even your mortgage.  The sky is the limit.

6. Stay Frugal

If Kevin can remain fairly frugal, keep his expenses low, and banks his raises, he will achieve his financial independence in a relatively short period of time.  In saying that, I would recommend that Kevin stay the course, invest for the long term but of course splurge a little every now and again to enjoy what money can buy.

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Kevin, I’d used $16K rotting in a no interest bank account and pay off your loan. That’s a 3.3% ROI right there. At your age I’d begin an RRSP (even a tiny bit now will be huge later in life), use the TFSA as an emergency fund and place it in a high interest savings product.
Don’t sell your company stock just yet, maybe at the end of the year. While buying stock through your company may be easy, avoid putting all your eggs in one basket. I almost cashed in all my stock options in exchange for shares in my old company. I glad I didn’t as they dropped over 50% last year and are still kissing a snake’s belly.
Good luck. I envy you for getting your finances in check so early.

I think Kevin might be a lot better served by direction his cash towards investing (in the indices as you suggested, FT) rather than paying off this debt.

Kevin is a neophyte so nothing complex – with the money he has he could put $5,000 into a TFSA now and could put it in a REIT index without worrying about how the income is treated. He could put a significant amount into a non-registered account and put it in other indices (look at couch potato portfolios).

Then, down the road, when he wants to buy a house he can transfer the assets in kind (up to $20k) into an RRSP (which would trigger capital gains so make sure it is only those that have appreciated since capital losses would NOT be allowed) for the HBP. He may or may not be in a position to realise the beneift of the RRSP deduction depending on how much he is earning at that point.

I really think that with Kevin’s relatively low tax rate a guaranteed 3.3% after tax return would be easy to beat in the next couple of years even if we retest March lows.

It sounds like if Kevin puts 2% of his net income into the company stock the company itself matches the contribution. That sounds like a pretty good deal to me – free money at 100%. What isn’t known is he long does he have to hold it before he is vested. A long time ago I worked for a company who didn’t have nearly as good a stock purchase plan but we were able to sell as soon as the company came out of the earnings release period. It was a great way to make some extra money.

Keep frugal, keep learning and continue to be cautious and you will do quite well for yourself.

Yeah, I wouldn’t ditch the Employee Share Purchase Plan. I just wouldn’t leave a ton of my net worth in it. Free money is good.

$32K at 22 well I wish that was me, great start there!

Student Debt: I agree with both FT and cannon Fodder, it comes down to how you feel about debt, do you hate debt? or you dont mind it? Like CF pointed out it can be fairly easy to beat 3.3% over the years and remember that interest on student loans are tax deductible which lowers your actual rate (although not a lot) I personally would go with this. But I also see the point of paying it off and being debt free, this is what my fiance would do.

Goals: You say you have no goals, but as FT pointed out you do seem to have a goal of purchasing real estate. Other than that I suggest you set some financial goals and write them down, at this age it can be very easy to spending money and not realize what happened.

RRSP/TFSA: I think what CF said is a good strategy, your income tax bracket is low and you probably have some student tax credits so you most likely will not be paying a lot in tax, depending on the amount you may not pay any taxes. So contribute to the TFSA first, than to RRSP but maybe deferral the tax deductions.

Company Stocks: Sounds like you are getting free money, and free money is always good. Depending on how much you employer matches it, I’d keep it. Fiances employer matches 50% so even when the stock went down 25% last year she made money.

Stay Frugal: that’s always a good thing!

develop a WRITTEN investment policy statement! Start Investing Early and regularly!

Read, read, read. I suggest you keep reading blogs and books on personal finance and investing the more you know the better.


Is your 33K income likely to increase significantly with experience, or slowly over time? 33K isn’t bad if it’s an entry level job, but if the prospects for increase aren’t great, further education might be worth considering.

I like Al’s suggestion best. At this young an age if he was to pursue further education he could potentially see significant returns over the next 10-15 years.

Pay off the student loan debt and then look at further education, either graduate work or professional designations, depending on what Kevin’s taken and where his interests lie. It sounds like he doesn’t have much in the way of hobbies/activities in his spare time so he should pursue the education part-time, allowing him to keep his main income stream intact and not having to incur further debt.

PROTECT YOUR A$$. At your age disability insurance is almost a joke cost-wise – plus you are probably VERY healthy. Guarantee the base to all of this – your income – with an ability to increase the protection as your income grows (which it will). Sorry guys – but before worrying HOW someone should invest, concern yourself with guaranteeing he HAS the money to invest

First, thanks FT for the post :).

@ Cannon_fodder

As far as I know, there’s no vesting time before being allowed to sell the stocks.

I’ll have to read about different indexes. Index investing would probably be the way to go to be diversified in a market.

@ Ray

I don’t mind having debts and can live with it. I’m confident enough in my capabilities to save my money and not go into a spending spree (Which is mostly why I could save that much lately ).

However, the rate at 3.3% is variable and not locked in. It could goes up. The ending of the payment is scheduled in 2023 ( yeah, pretty far ). I thought about investing my money first, and if what I make through investing doesn’t pay up the interest, just take the money out and pay off the loan. The payments aren’t high (140 a month, 43$ going in interests at the moment).

The student loan has been a major question mark in my head ( should I pay it off or not ). Of course, it’s better to pay it off than keep my money in the bank, but seeing as I want to invest, I was thinking I’m better off investing in the market and get better returns. Just need to make sure I get better returns without too much risk.

The employer contribution is 100% of my 2% contribution, so it’s matched evenly. Free money!


I was asked if I wanted a promotion last week that would bump me into the low 40k range. I went through an interview which went well, and one of the employees in that group told me that I was the first guy on his list ( he’s not in the recruiting staff, but still has a say on it. From there, after about two years of service, I can be referred to different departments, may it be Team leader, Floor manager, Software support, etc. ( I’m in the IT business ).

I’m currently doing the helpdesk job.

@ jubjub continuing education is always a good option, depending on the company often times they will pay for your education if you have been a certain amount of time with them and it is related to your job.

@ Tim Landry excellent point. I assume he is getting insurance coverage at work, if not than you may want to look into this. Insurance is the first step in financial planning.

@ Kevin…well if you dont mind the debt than, keep the $32K and invest it, but increase your minimum payments this will lower your monthly savings but reduce your debt faster. the $32k can be used to take advantage of the beaten markets (well not anymore so much beaten). Maybe double your monthly payments, since your interest is low the more you the more will go towards principle.

He may well be getting insurance at work NOW – but given what is and will probably continue to happen with employee benefits and also given the fact that we are told that we will have 3 careers and 8 jobs over our working lifetime we cannot count on that protection being there when we need it.

@ Jubjub

I believe that training required for different positions is provided by the company through a service that has courses for just about everything ( management, technology, even cooking! )

@ Tim

Disability insurance is provided by the company to a respectable amount ( which I don’t have with me right now ).

@ Ray #9

Doubling the payments could be an idea and be seen as an in-between idea of either paying up the debt or investing the money.

Kevin – accepting that it is there NOW – what happens if you decide to go on your own? Or if you get an offer from another company for a 25% salary increase – but with no or reduced benefits? Remember our economy wishes to compete with India an China – and other low cost economies. Why do you think jobs are moving offshore? Because it means Canadian businesses can produce the same goods for less costs. One of these “less costs” is employee benefits. AT LEAST buy a nominal amount with a Guaranteed right to increase it should you lose your benefits for any reason. My brother would KILL to have been able to do that. We are talking – at your age – a cost of $25/mth or LESS and you cya

It is not the amount he can get NOW – that is why the Guaranteed Insurability is so important. He can buy $500/mth NOW – or $1,000 – and guarantee himself the right to buy a LOT more as his income increases OR if/when he loses the group plan. In effect he is GUARANTEEING his future. Get a fabulous job offer but no benefits? He can take it even if it is in Iraq and even if he is an insulin dependent diabetic or overweight – he can THEN buy all the DI he needs – no health or occupation questions – and at the same occupational class he would have as an employee – which may well be better than he will be able to get if he is independent

PS – He is his own biggest dependent – just ask my brother what he would do if he had been able to buy individual DI when he was in charge of Canadian operations for the company that makes the oil treatment – STP

Also Frugal Trader the whole idea of buying insurance is to buy it BEFORE you need it. If you wait until you need it you may not be abe to get it.Again – apply the same logic to his car insurance. With a $3,000 car – and Quebec’s No Fault Auto Insurane – does he need car insurance? Want to bet he has some? $3,000 car – $1,419,000 potential income over a working career – ignoring any raises. What gives him the car? and all the other investments he will make and things he wil buy?

As to the student loans, it’s important to remember it’s not necessarily an all-or-nothing scenario. Kevin could pay a portion of it now, and then continue to make his current payments, which would then pay down the principal faster. Or he simply start throwing all of his monthly surplus at the loan from this point onward. That would accelerate the repayment timeline significantly, but still let him invest with the cash he has built up now.

The one thing though – because the interest rate can (and realistically probably will) go up, make sure to keep the full amount of the loan outside an RSP. That way it’s always available if you do decide to pay it off in a lump sum.

Disability premiums are not set and increase over time, unlike life insurance premiums. So the idea of get it young to save doesn’t really apply to DI policies. He has a group plan and EI benefits that will cover him for a while. DI policy payments can not exceed a certain level of your income (usually about 66-70%) So having an additional private policy will not do any good in this case.

It is not so much the premium saving. I agree that the price difference between now and 30 – even 35 – is basically non-existant. My concern is two-fold. One – all guaranteed carriers give a better occupational class (read lower rate and possibly better terminology) to stable risks which virtually guarantees a better price while an employee – and CERTAINLY a better price and amount than while setting up in self-employment as this young guy may very well do. Second – far too often (even at VERY young ages) I have seen clients develop conditions – be it the diabetes I mentioned or stress-related problems or (today particularly) weight issues and be unable to obtain coverage. I just figure that for $25 or $50/mth – which is all we are talking about here – this is too big a chance to take

Ray – as someone who has specialized in DI for 40 years – there are a LOT of loopholes in what you just wrote. To start with – Canada, Great West, Manu and RBC’s guaranteed DI products do not increase once you have purchased them – and once a non-cancellable DI policy is in force, benefits cannot be reduced even if your income drops substantially or even disappears completely – as long as you are not yet 65

It depends on the product you purchase the guarantees will cost extra in premium, the standard policies are subject to premium adjustments. I know with RBC the Professional Series and Foundation series guarantee premiums which are also the more expensive policies.

$25/mth what type of policy would that be? Regular definition? how long waiting period? and how long benefit period? $25/mth guaranteed to age 65 just sounds too low.

Reg Occ to 65 with Residual and Partial built in – using 3A – $500/mth basic policy 90/65 (the guy has adequate funds to live for 3 months) – ProGuard Manu policy – including $3,000 GIO – cost is $20.37/mth. Even if I take the base policy to $1,000/mth you are looking at $31.35/mth. The most important part of this is his AGE. DI is so cheap if you buy it young

By the way – if he applied for $1,100 (instead of $1,000) he would qualify for the “Group Offset” discount and would actually pay LESS for $1,100 ($30.20) than for $1,000

sounds like a good deal. are the premiums guaranteed to age 65? Cost of living adjustment?

Premiums are guaranteed – I did not include COLA – but it would not increase the premium much – $34.53 $1,100 90/65 with GIO and COL as an example

Age is THE key – and you usually get better heath as a bonus. I STILL remember being asked to quote on a 29 year old doctor. I still to this day do not believe the income I was given – $400,000 annually – but assuming that was correct he could buy $12,000/mth PLUS COLA – PLUS GIO – PLUS OWN Occ to age 65 – PLUS $2,000/mth Savings Protector PLUS ROP – for $4,000/year. Yeah – $4,000 yearly is a big premium – but in relation to an income of $33,333 MONTHLY

Some great advice in the article.

I would strongly suggest you find a good retirement calc and understand the benefit of compounding.

My biggest reward has been investing in the housing market at the right time. I have always beleived investing in your own property not paying rent on other peoples investments.

I’m confident you are budgetting well to have saved that nest egg. But having a good budget/finance plan at your age will make big savings in the future.

As mention in a recent article here make sure your budgeting fun stuff in there as well. Being Single and 22 with no ties is the time you want to spend some of the money on FUN!! If you want to travel around the world do it? if you want to take up a fun hobby do it.
My example, I paid minium retirement first, paid minimum mortage for my house and spent every other penny on FUN during my 20’s, I’m now in my late 30’s and so glad i did.

Very good advice.

My question is – does Kevin have a degree? If he doesn’t he should get a BA or BS since he has lots of free time – this will help boost his income.

If he does have a degree and only earns $33k a year -then he should definitely look for another job that has more benefits and will help improve his skills.

A piece of advice that I would give (along with paying off your student loan) is to keep about $5000 in an emergency fund. You could of course place all of this in an RRSP, but then you can never touch it (could be a good thing). By having a bit of cash handy for emergencies, it would probably be beneficial. By placing all your money in RRSPs though, you would get a nice chunk of cash back at tax time. The emergency fund could even be in your TFSA, where you can earn the interest tax free in it!

I think you should invest in the stock market, buy the condo and rent it out, take a little risk and make mistakes. Dude we have similar backgrounds I am 22 with over 20K in the stock market, no college debt and looking to buy a townhouse very very soon!

@ Paul Fraser

What the heck does your beef with RBC have to do with the topic of this thread?

@ Kevin,

Congrats on being where you are at at the age of 22. Continue to read and educate yourself on investing. Don’t worry that you are missing out on stuff. Once you know what action you want to take, then take it. Keep up the saving mode. That will serve you well for your future. Just make sure that whoever you hook up with in the future is also similar to you from a financial perspective. If you find someone that like to spend or overspend, that will cause problems in the relationship.

Since you are not a handy person, then learn who other people rely on for services. You may want to buy a condo, since a lot of the maintenance may be already included in your monthly condo fees.

Good luck in your financial future :)

I am 20 year old, i own a condo in Montreal (RDP) since i am 18.

I would say that your best bet it to put cash on a 6+ complex building. (that sells around 400k) There would be alot more money to make (reinvest in the mortgage than a condo.

Yes – the bottom line to Kevin and Frederick and other young ones – CONGRATULATIONS. You have created habits that WILL lead to success. God I wish I had been as wise as you 40 years ago

Re insurance:

I contracted Type I (insulin dependant) diabetes when I was 24 years old. I am now 28 years old. Only a very distant relative actually had the disease that I didn’t even know existed … so it was very unexpected. Fortunately my dad had the foresight to buy me guaranteed life insurance with 3 opportunities to increase it in my lifetime when I was still a child. Otherwise, I would most likely not be eligible for personal life insurance.

I would like to go into business for myself now but I won’t be able to obtain medical insurance so support the $500+/month cost for my diabetes supplies let alone disability insurance. I haven’t actually called around and gotten quotes to find everything out (I need to do this) but I’m sure it won’t be pretty and very depressing when I do. This means I need to work in the public sector and obtain group insurance to have any sort of security through insurance.

Investing in insurance young may seem like a lot of wasted money and it may end up that way … but if you happen to contract something horrible now or later the amount of additional stress and worry you will save yourself will be HUGE.

So for summary:
income 33k/yr
savings 36k
debt 16k

Pay off student debt entirely. It is non-deductible debt. That leaves you with 20k of savings. Place the remainder in an RRSP savings/1yr GIC. The reasons for this is that you can pull out the 20k to put toward a house/condo when you find one you like. Also putting 20k into your RRSP in one shot will give you a $5,127 tax refund which you can then put into your TFSA if you wish.

Lastly if you are comfortable with debt you can take out a personal loan to purchase stock. The difference is that loan is tax deductible and the intrest is treated identically as an RRSP. Figure per 10k at $350/mth total payment whihc includes $75 interest per month.

By doing the above you are left with the flexibility to buy a house and are ok if you lose you job in the short term. Your emergency fund is your house fund, which ever comes first.

Stephen – I will say two words – THANK YOU – and I will also pray that medical science continues to advance. When I started in my business in 1969, many conditions which today can be insured (even if not at standard rates) were totally uninsurable. I pray insulin dependent diabetes is one of the next to get past that barrier. It is so common – and so potentially hurtful. My prayers are with you

For someone only making $33,000 / year who ALREADY HAS disability insurance, spending $25-$50 / month for a second policy just doesn’t make sense to me.

With all due respect, Tim, the suggestion of an insurance salesman to buy insurance is hardly unbiased.

With all due respect – having seen what happened to my brother – you want details I will be glad to give them – and reading Stephen’s posting – I will DELIGHTEDLY declare my bias. Also – my “clients” are insurance ADVISORS – I do not sell to the public. Again – I will just remind you of a few facts – our income is our most important financial asset. EVERYTHING revolves around and assumes that one item. How many of us find $1.00 to $1.50 a DAY for “junk” purchases. This is what I am talking about – as far as amount is concerned – and protecting our most important asset is hardly a “junk” purchase. Also – given what is happening with jobs – and benefits – we cannot rely on “employee benefits” to be there. Forget the terminology issues – the bloody plan will NOT BE THERE. Having PRIVATE DI is a TOUCH more important than a Starbuck’s Coffee

PS – every human being – ALL OF US – have “biases” – it is part of being HUMAN. Again – I feel I owe YOU – the people on here – a certain degree of information. I am NOT trying to SELL you – but I AM trying to inform you. Most people are not aware of the issues I raise. Funny – the largest (BY FAR) purchasers of individual DI are Doctors – those most aware of the problems – PLUS those exposed to professional association policies. They can well afford to purchase “cheaper” policies and choose NOT TO – in massive numbers. You say “at $33,000 can he afford it?” I say it is up to me to find a way to design a program he CAN AFFORD – but at LEAST – it is my job to inform YOU of the options – and the implications of those options.

You’ve got to tell us how you got 36K in cash (55K gross) after working just one year. That’s huge and congrats!

Be happy with the cash you have. However, know that you’re only in your 20’s once, so if I had that cash, I’d just live it up, but not on debt. You have your life to make good money, and if you can make 36K cash 1 yr out of school, you will probably have $1mil in cash by age 30.



I don’t know what everyone is talking about. This guy is not “Cash Rich”. At the rate that he is going for $400/month savings, that’s not that much money that he’ll be able to save. When I was 22, I had a $36K/year job for internship, then it went from $45 to $55 to $65, $75 to $85 to $100, to $240(self employed) at 29 years old and I’m still struggling to get to that financially independent dream. It’s the government that takes all my money, I spend very little, have two properties, and I don’t see myself retiring for years. People don’t realize how the government sucks the life and ambition out of you in taxes. Keep working hard.

All the Best

Interest on government student loans is deductible.

Once it is paid off, he is unlikely to be able to borrow a similarly large amount to invest with so little credit history.

Given his young age, the low rate and the state of the market, he could easily invest the 16k instead and simply pay the interest. This is what I did.

Given his low salary, TFSA is clearly better than the RRSP. He can even withdraw money for a house from the TFSA and pay it back whenever (or not), unlike the RRSP. The salary will grow over time and then he can start contributing to a RRSP.

He might want to think about getting a condo so that he can live it up close to downtown for awhile.

I am turning 18 this march and I have about $21,000 cash (what to do with it)
. not in debt
.I save 15-20% of every pay (part time job)
.going to college next year
.live in Montreal if that helps
I don not know what to do to with my money
I have nobody who is good with money
so I ask you pros for help
thank plz reply

@ Tom
I was looking at disability insurance for my hubby 48 years old in a trade and it would be over $400 per month for almost nothing. Not sure what it would have been if he were in his 20s as his is a dangerous trade but yeah, you don’t want to wait.

For a 22 year old kid, I’d say hes got a firm grip on life, and looks like hes in alot better shape than alot of the 22 year old kids I know, and I should know this… because I myself am 22 years old… though I’ll be turning 23 this month… not really looking forward to that! lol

Right now… I am majoring in Finance in my Junior year, so it was fun to read this case study. If Kevin does everything right with the advice hes been given, he should be real well off financially at age 27 when he wants that child, hehe.

Till then,


Instead of letting it rot in bank accounts, shove it into one of the high interest online savings accounts while you decide what else to do with it.