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A simple approach to money management when you’re starting out
When you’ve finished school and are trying to get your career off the ground, there’s a lot to worry about. Don’t let finances be one of them. Follow these basic rules of money management.
1. Pay down debt
Many people graduate with debt, making it that much more challenging to get established. Always make your scheduled student loan payments, and if you are struggling, speak to your lender rather than falling behind or defaulting.
If you have other debts, focus on paying these down, starting with those that have the highest interest rates, such as credit card balances.
2. Balance the budget
To avoid falling into (or back into) debt, make sure your income is always higher than your expenses. How? Keep discretionary spending (non-essentials like entertainment, restaurant meals and fast foods, unused gym memberships) in check and cut back if you have to. If that’s not enough to balance the books, find other ways to trim (such as sharing accommodation or finding a cheaper phone plan), or boost your income by taking on extra work.
The Ontario Securities Commission has prepared an excellent budget worksheet that can help you track your income and expenses.
3. Save, save, save
If you’re not putting any money aside, start now — even if it’s just a few dollars a week. If you’re already saving, try to boost the amount. An Automatic Savings Plan (ASP), which transfers money from your chequing account into a savings account, makes it easier. A high-interest savings account is a good way to make the most of your shorter-term savings
For funds that you won’t need to tap into very often, open a Tax-Free Savings Account (TFSA), so the interest or earnings can grow tax-free.
4. Invest for tomorrow
Many young people avoid investing. But it’s about the only way to stay on top of the eroding effects of inflation.
There’s an overwhelming number of investment options out there. A financial advisor will find investments based on your goals, time horizon and risk tolerance. It can be challenging to find an advisor when you are younger and your assets are still low, but we work with a number of younger clients and are happy to work with you.
5. Take advantage of “free” money
If your company has a pension plan that matches your contribution, sign on as soon as you’re eligible — even if you feel you can’t afford the contributions, or retirement seems a long way off. If you opt out, you’re passing up “free” money from your employer’s contribution. This could add up to a significant sum, once you factor in compounded returns over the decades of your career.