If you are amongst the many individuals who have recently graduated from a post-secondary institution, we congratulate you!
After successfully landing that first job, your next steps are to consider your financial health and your goals for the future.
Developing a Financial Plan
Spending money will be a significant portion of your financial plan, and the development of a financial plan will insure that you can put money towards the goals and items you want, rather than wondering where all of your extra income has disappeared to at the end of each month. The most significant expenses you will incur are often paying off student loan debts and your living expenses. There are, however, many other expenses that arise which necessitate a financial plan.
Before those pay cheques start coming in, gain a clear understanding of what your expenses might look like by talking to your peers, parents, and trusted advisors. You may have handled your own expenses and created budgets previously, but you can always learn more by seeking guidance from the who have experienced the changes associated with post-graduate life. Managing money is not difficult; it just takes some thought, planning, and perseverance. It is never too soon to start working on the working on the skills that will set you up for success in the future.
Assess your situation
How much will your bring-home pay be (not your salary, but the amount after deductions)? What expenses do you have currently? What happens if you face adverse situations? When and how do you see retirement (yes, retirement)? How do you see your life and future?
Holding a preliminary plan in mind, think of what your typical monthly expenses will look like:
- Cost to rent a home
- Cost to maintain a home, i.e., utilities, internet connection, supplies, maintenance
- Cost of food
- Cost of transportation to and from your place of work (gas, car maintenance, loans, or public transportation)
- Cost to work. Think of items such as attire, training, non-covered expenses (Will you have lunch/coffee at work or bring food from home?)
- Health and dental costs that aren’t covered by our healthcare system
- Loan payments such as student loans, car loans, or mortgage payments
- Insurance coverage (car, home, renter’s insurance, life insurance)
- Saving for emergencies
These are the most typical expenses, but depending on your circumstances (living situation, spouse, dependants), expenses may vary. Maintain a clear, realistic assessment of your expenses at all times.
Create Your Budget
How much money will you have to work with each month? What are your total known monthly expenses? In the planning stage, you have determined what these factors will be. To help understand your financial health, a monthly budget is essential. Spending more than you bring home can quickly lead to problems. Credit cards or loans are not a solution and will only cost you more in the long term.
Creating a budget can be as simple as had written log or electronic spreadsheet. There are software programs and apps that are very helpful for creating your budget and keeping you on track. Additionally, there are some very helpful web resources available, including Practical Money Skills Canada, that can guide you through this process.
Once your budget is established, you can determine if you have money left at the ed of each month. Having a zero or negative balance left over can be a bit disheartening at first, but this process is really the foundation for success in the future. By knowing what your basic living expenses are, you can ensure you are meeting your basic needs, and as your income increases you can really save for the things you want!
Investments, Savings, and Retirement
After graduation, the last thing on your mind is probably retirement or investing. The reality, however, is that if you put money into a plan now, your income will start to vest and your retirement will be easier to afford. Starting now means you have more time to put money aside rather than waiting until you are 40 or 50 to begin saving. If there is one thing I could go back and teach freshly-graduated-Craig, it would be to put 10% of every cent I earned into savings for myself. It would be a tough sell to the younger me, but it would absolutely be worth the effort as the minimal sacrifices at that time would have amounted to financial freedom far sooner than anticipated. Of the thousands of people I have helped to become debt free, those that embraced this mantra and live by it become financially free more quickly and more consistently than those that didn’t.
Financial institutions will be more than willing to help you set up basic savings accounts such as TFSAs and RRSPs that will grow your income passively as you make contributions over the years. However, it is important to be mindful of fees. Some investments and institutions will ‘fee’ you to death and really mitigate the earning potential of your investments. I would recommend investigating low fee index funds and finding someone you trust to assist you with your goals. A little research will go a long way, so don’t let the potential negatives deter you. It’s better to get started than to wait.
Having a budget and living within your means is a significant benefit for your financial health. That being said, when it is time for big purchases such as a home or car, your lending institute will look at your Credit History. How do you build or establish credit history? If you have a Student Loan and are paying it on time with no issues, this becomes part of your credit history. Paying your rent, utilities, etc. on time will also add to your credit history.
Credit cards are another tool that, if used responsibly, can contribute to building good credit. Having a credit card is not a bad thing unless you are relying on them for your daily living expenses. There are many instances where a credit card is necessary. Paying the charges off in full each month adds to a healthy credit rating. Not paying the card off, or only paying your minimum balance owed will cost you a monthly interest rate until the card is fully paid off. The interest amount will vary depending on the credit card type and the institute providing the card. For example, Bank of Montreal has a card with a monthly interest charge of 19.99% for purchases (on a $500 purchase the interest is almost $100) and 22.99% for cash advances. Not paying the monthly charge or defaulting on the payment will negatively impact your credit history. Be wise with credit cards, and only use them when you can immediately pay off the balance owing in full.
If you have incurred credit card debts that you cannot afford to pay off, speaking to a professional at The Fryzuk Group can hep in determining the options available for eliminating your debt.