Overview
New graduates are entering a highly competitive job market while navigating a high cost of living and an unaffordable housing market, particularly in metropolitan centres like Toronto and Vancouver. In this article, we will explore eight smart financial tips for new graduates.
Tip #1: Adopt a Budget
One of the most important financial skills you need to develop is how to manage your monthly cashflow effectively. Having a credit card makes it easy to overspend because we don’t see the immediate consequences of making a frivolous purchase. However, over time, excessive spending may catch up with and overtake our income. People use a variety of budgeting methods to help them manage their cashflow efficiently.
Here are a few examples:
- 50/30/20: This budget method has you spend 50% on needs, 30% on wants, and 20% on savings and debt repayment.
- The envelope system: This old-fashioned method has you distribute cash between various envelopes, labelled with their respective spending categories, such as groceries, gasoline, and more. Once the money in the envelope is spent, you cannot spend any more money in that category that month.
- Zero-based budget: In this budgeting system, you assign every single dollar of your monthly income to a specific purpose such as housing, groceries, car insurance, and so on. Not a single dollar is left unaccounted for, thus helping you be more intentional about your spending.
- Pay yourself first: This method entails setting aside some money in a savings account as soon as you get paid, before you spend any money on your needs and wants.
Whichever budget method you choose, make sure you stick with it for the best results.
Tip #2: Increase Your Income
As a new graduate, you may have a valuable college diploma or degree. You may have learned a lot and acquired a lot of theoretical knowledge. However, you may be facing difficulties translating that theoretical knowledge into real-world experience. Young graduates face a catch-22: you need experience to get experience. Many are forced to work jobs outside of their field just to keep up with their bills.
However, there are ways to enter the field of your choice. Once equipped with the right education and training, you need to get your foot in the door. For example, as a graphic designer, you may want to work at a smaller company with lower pay before you acquire sufficient experience. Then you can leverage that initial experience at a smaller company to obtain a higher-paying job at a larger business, as you have now demonstrated your practical skills, stability, and reliability. Alternatively, you can use your skills as a freelancer, which may allow you to work with a variety of clients and build a portfolio. You may be able to leverage this experience to get a higher-paying role. Don’t be shy about using early work experiences as steppingstones to better roles at larger companies.
Tip #3: Start an Emergency Fund
According to the Canadian government, two-thirds of Canadians do not have funds set aside to cover three months of expenses. This leaves them vulnerable when life’s inevitable emergencies come up, whether it is the loss of a job, car repairs, an illness, or something else.
To escape membership in that group, start early – start building your emergency fund today. Even a small amount of money set aside per week can result in significant savings over the long term. For example, $50 saved per week would result in $2,500 saved in 50 weeks. This is just an example – any amount of regular savings will accumulate with consistency. If you were to save just $500 for emergencies, you would be ahead of approximately 25% of the population that cannot cover an unexpected expense of $500.
Tip #4: Start Planning for Retirement Now
Start saving for retirement now. You may be young, but that is precisely your advantage. Consistent savings and investments over the years and decades will likely grow due to compound interest. In this way, you will have a chance to accumulate significant savings and investments by retirement age, ensuring a happy retirement.
If you are unable to save much right now, make it your goal to get to a point where saving is viable. Take it one step at a time. The process takes time, and there are no quick fixes in life.
Tip #5: Automate Your Payments
Do you ever miss payment due dates? Consider automating your bill payments. It is possible to automate most or even all bills e.g. hydro, rent, phone, Internet, and more. Set up a pre-authorized debit (PAD) plan or a pre-authorized payment (PAP) plan with the respective service providers, provide the correct banking information, and sit back. The amounts will be automatically debited from your chequing account or charged to your credit card on the respective due dates, ensuring you are never late again.
Just make sure you have sufficient funds on each due date. Non-sufficient funds (NSF) fees may result from not having sufficient funds in your account to cover a given payment. NSF fees are expensive and may have a negative impact on your creditworthiness.
Tip #6: Improve Your Credit Score
Having a good credit score opens the door to more favourable loan terms and improves your chances of qualifying for a rental or mortgage. There are many different ways to improve your credit score, such as the following:
- Pay your bills on time. Automating your bills may help with that.
- Keep your credit utilization ratio below 30%.
- Keep your credit card balances low.
- Don’t max out your credit cards.
- Request a credit limit increase but keep your spending in check.
- Sign up for Credit Verify to take control of your credit health.
While these tips may be challenging to implement, they are crucial to ensuring your long-term credit health.
Tip #7: Understand Tax Deductions
Contributions to your Registered Retirement Savings Plan (RRSP) are tax-deductible. This means your tax obligations will be reduced based on the amount you contribute to your RRSP. However, make sure you do not exceed your RRSP contribution room. Otherwise, you may face penalties.
Ontario offers a wide range of possible tax benefits and credits, such as the following:
- Low-Income Workers Tax Credit
- Northern Ontario Energy Credit
- Ontario Child Benefit
- Ontario Child Care Tax Credit
- Child Care Fee Subsidy
- Assistance for Children with Severe Disabilities
- ODSP: Ontario Disability Support Program
- Ontario Drug Benefit Program
- Ontario Seniors Care at Home Tax Credit
- Ontario Seniors’ Public Transit Tax Credit
- OSAP: Ontario Student Assistance Program
For more detailed information, visit Ontario’s government website.
Tip #8: Master the Basics of Investing
As an average investor, you want to keep your investment strategy simple. The simplest way to do it is to buy index funds e.g. S&P 500, save and invest regularly, and be patient. If you start early and stay consistent over the years and decades, you can experience maximal growth in your savings and investments. Do not fall for overinflated social media gimmicks – keep it simple and keep it consistent. Results will follow.
Final Thoughts
The above financial tips are brilliant ways for young adults in Ontario to improve their financial situation. Adhering to these strategies may help you optimize your financial outcome.
At the same time, Ontario’s economy is in a tough spot, and everyone is feeling the effects of inflation, the housing crisis, the cost-of-living crisis, high interest rates, and the limited number of high-paying jobs. If you face unexpected expenses and need quick funds, apply for a personal loan online via OntarioCASH. We don’t check your credit score or credit report during our simple and quick online application process.
