Financial Tips for Young Adults
Oct 20, 2020
Recently, my nephew and I went out for lunch to celebrate his acceptance to the University of Victoria. I would like to share some of the financial advice I passed on to him:
Control Your Financial Future through Self-Discipline – One of the main reasons people run into financial trouble is a lack of self-control. We live in a society that encourages mass consumption through targeted marketing and advertising. Combine this with access to easy credit and you can quickly find yourself in over your head. Before you buy, consider if this is something you need, if you have the money to pay for it now, and if not, if you have a plan to repay the debt.
Track Your Spending – You need to understand where your money is going, and the easiest way to do this is to review your banking activity. Scroll through your transactions each month to make sure you have more money coming in than is being spent each month. A saying I like to keep in mind is that a dollar saved is a dollar that can be invested, and a dollar invested always has more potential than a dollar spent. You also want to make paying bills on time a priority to stay out of debt and build your credit score. A simple budgeting technique I learned when I was young is known as the 50/30/20 method. Under this approach, 50% of your money should be spent on your basic needs such as food, shelter, clothing, transportation. Thirty percent of your money can be spent on wants, and the remaining 20% should be put toward savings.
Start an Emergency or Rainy-Day Fund – An emergency fund is money you set aside for unexpected expenses. You will likely have a financial emergency resulting from an unexpected situation or a drop in income at some point in your lifetime, so always having some cash stashed away is a good idea.
Start Saving for Retirement – The easiest way to prepare for your retirement is to start saving while you are young. By starting early, you will allow the power of compounding to work for you sooner so you will not need to save as much down the road to meet your retirement goals. Consider setting up an automatic savings plan with your bank, and increase your contributions as your earnings grow. Company-sponsored retirement plans are also a great choice because the money is deducted off your paycheque so you will not have the opportunity to spend the money, and employers often match all or part of your contribution. If you direct your retirement savings toward an RRSP you will get a tax deduction at the end of the year.
Understand Your Taxes – You don’t need to master this topic, but you do want to have a basic understanding of your personal tax situation. Try using tax software to prepare your own return to gain an understanding of your taxes as well as any tax deductions that you can claim.
Bottom Line – No one cares more about your money than you do, so it’s wise to invest a bit of your time to understand your personal finances and increase your financial literacy.
If you act wisely early on, you will reap the benefits later on. ■
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