Generation Why is a financial advice website for millennials by millennials.
Generation Why's here to teach you the lessons about money school forgot the tell
you about to help you become a more independent adult. Read more here.
Dear college/university grad,
Congratulations! You’ve graduated. You’re an adult now. You’re ready for the “real world”, ready to start an RRSP, improve your credit score and adjust your savings plan according to prime minster Trudeau’s new tax cuts, right? Nbd.
“There has to be a cheat sheet under here somewhere.”
If you were reading that and it felt like you woke you in the wrong class again, join the club. An Ipsos Reid survey found that 60 per cent of Canadians aren’t confident with their financial management skills including 73 per cent of those aged 18 to 34.
Financial literacy is a skill that everyone needs yet they don’t teach it in school. You need to know how money works and how to use it responsibly, especially when it comes to things like getting married, pursuing a professional degree or paying back the small fortune you owe for your “education.”
But it’s not too late. Here are some financial tips school forgot to teach you:
Don’t get in debt or hurt your credit score:
Debt is an amount owed for loaning money from someone like a bank or a credit card company. Your credit score is a measure of the risk associated with lending you money based on your credit use.
“It defines your borrowing character and whether or not you’re worth loaning to,” Elie Dalle elaborated.
Dalle, 33, is a mortgage specialist for a Royal Bank of Canada in North York. He started working at RBC shortly after he graduated university, it was there he learned the financial ropes.
“I wish I had understood more at the time,” he admitted. “I didn’t when I graduated.”
“It’s extremely important that young people understand credit and don’t miss payments,” Dalle added.
Not making payments on time hurts your credit score and makes it difficult to be approved for loans later on. It makes you look irresponsible. Having a bad credit score also means the interest, the fee you pay for borrowing someone’s money, you’re going to be charged will be high.
Imagine buying a five-dollar-foot-long but having to pay six dollars for it because you’re charged a fee for getting your wallet slowly. Silly, right? The best way to avoid fees and high interest is to make a schedule for paying back debts.
Make a budget and stick to it:
The easiest way to avoid using someone else’s money is to use your own. You use your own money by saving it and the easiest way to save your money is to make a budget. A budget is a list of all your expenses (from booze to textbooks) and all your sources of revenue. The purpose of a budget is to find the difference between the expenses and revenue and make sure you’re making more money than you’re spending.
Bruce Sellery, a business journalist and founder of personal finance company Moolala, says it’s important to “address the gap” in one’s budget.
“For young people, it pays to look at what is discretionary – what you can change – versus what you cannot. ” he said.
You can’t save on tuition or rent but Sellery suggested packing a lunch, taking more shifts at work and leaving your debt and credit cards home while you party as ways that “make it easier to save and harder to spend.”
It helps to show your budget to a financially responsible adult Sellery,45, added.
“You’re more likely to do what you say you’re going to do t if you show it to someone,” he explained.
Invest your money:
A budget is a great way to map-out your finances and build a plan according to Hayden Jones, former financial advisor of Primerica Financial Services. Jones, 44, says good saving habits are the key to financial stability and you should start “as soon as you get a job.”
“Especially if you’re living at home and don’t have many responsibilities,” he added.
Jones recomends getting advice from financial advisers at school or friends who are financially savvy for advice. One of Jones’ savings tips is to is to set aside 10 per cent of your income to invest in an RRSP.
An RRSP is “Any type of saving or investment agreement with the government to not tax any growth on the money you’re investing,” Jones explained.
There are different kinds of RRSPs like bonds, mutual funds and stocks. Jones says ask yourself “what (investment) instruments will get me the best return?” when looking into RRSPs.
Think of it like this: If you make $100 a month and you’re going to put away $10 every week, would you rather a plan that adds 10 per cent of your initial investment to your savings every week or a plan that adds 25 per cent of your initial investment to your savings every month? Your answer should be the first option because after a month you will have saved $40 and earned $4, (let’s assume it’s a non-leap-year February) whereas with option two after a month you will have saved $40 but earned only $2.50.
If this is new to you and you’re intimiadated don’t worry, there’s a lot to learn. Thankfully it’s not as boring as algebra and unlike algebra, this information will actually be useful in the real world. So, if you were planning to “see the world” before you “settle down”, you’ll need a good financial plan in place unless you plan to see the world from a screen.