David Tims encourages people to pay off debt, budget effectively and invest for a stable future. [Photo Credit: Ryan Whitefield, '10 BA]
Sitting at a desk talking finance with David Tims, '85 BA(Hons), '87 MBA, feels like meeting with an earnest teacher or a steadfast father figure.
Tims is a tall man with a powerful voice and a vigorous demeanour. You listen when he looks you in the eye and says, "Pay. Down. Your. Mortgage." After all, as managing director of Fixed Income and Currencies with RBC Capital Markets, his clients are some of the largest pension fund managers in the world. We're talking billions.
The new reality, Tims says, is people who are now in the early stages of their careers are going to have to work longer and save more than in previous generations, given rising life expectancy and almost-certain lower retirement benefits.
"I think we'll see among the young grads and in the next generation that people will have two 25- or 30-year careers. Engineers at 45 will be going back to medical school. It's a whole new opportunity and a different dynamic."
When asked what advice he has for those who aren't on Forbes' list of the world's richest people or don't have a government-defined pension plan, Tims has a few key bits of advice: pay off debt, budget, save and invest.
Most people have a remarkably poor understanding of money, he says. As he describes the chain of events that can lead to debt, it brings to mind Yoda, the wisdom-dispensing Star Wars character. If Yoda were a financial adviser, he might put it this way: Inexperience with money leads to spending. Spending leads to debt. Debt leads to suffering.
Mmmm. Much suffering in debt, there is.
Tims offers five basic financial tips:
1. Say no to debt
Tims strongly recommends you pay off your mortgage post-haste. If you have money left at the end of the month, that's where it should go.
"I paid off my mortgage," he says. "I felt like I was investing in myself, because when I pay down my mortgage there is zero risk in that investment. If my mortgage is five per cent, I'd need to find an investment that pays 10 per cent pre-tax to break even. It's a no-brainer."
In Canada, you can make a 13th mortgage payment every year without penalty; the money goes straight to the principal and can help pay off your mortgage years earlier.
2. Be careful with credit cards
Credit cards should be used like cash cards. Keep your limit low and pay off the full balance every month, since interest rates can hit 18 per cent and higher on some cards.
"The credit card companies will be constantly inundating you with the option to increase your limit," says Tims. "You need to be disciplined and say 'no.' "
3. A budget is your friend
Budgeting is "absolutely important," says Tims. You have to know where your money is going - and make some decisions about where it should go. Maybe you take one less holiday a year or hold off buying a new car in order to get your finances in line.
Tims asks questions such as: Do you know what you're paying in fees and interest payments each month? Do you know how much money you'll need for retirement? "It is a really big number, probably three times what most people on their current path will have," he says.
4. Invest early and often
The best way to prepare for the future is to invest early and often. RRSPs and tax-free savings accounts are two of the best ways to save your money because they are low-risk and simple.
There is no downside to saving more, Tims says. The government encourages people to save through RRSPs, he says, and "when the government offers you an opportunity to shelter your money, you take it."
5. Invest in what?
Investing can be confusing for the uninitiated. Tims calls on advice from a well-known business magnate. "The best investor of our generation, Warren Buffett, tells the average person to just buy exchange-traded funds," Tims says. ETFs are a broadly defined index where you can invest in a stock market's biggest companies rather than an individual stock. It involves fewer fees and is much less risky than trying to pick "winners."
"These are NyQuil investments - you can sleep at night," says Tims.
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