(Text adapted from the Career Centre Library Tipsheet)
Financial planning is a skill most individuals are forced to acquire at some point in their lives. However, it is especially true for university students and recent graduates.
Financial plans can be long or short-term, structured or unstructured. Some people prefer to cross financial bridges when they come to them, while others adhere to a strict budget. There are no hard and fast rules for financial planning, since every situation and person is unique, but there are some basic principles everyone should follow.
Below, you will find information on financial planning, budgeting, RRSPs and investments and resources.
Financial Planning 101: Things You Should Know
Dealing with Your Debt
As soon as you have acquired a small pool of savings ($500 or more) to cover contingencies, start working on paying off any accumulated debts. Credit card debt takes priority over student debts as the interest rates are typically higher. Keep in mind that you can often consolidate credit card debt by taking out a personal loan from your bank at a much lower rate of interest.
You must begin payments on your student loan six months after your last day of full-time study. This can be difficult if you do not find employment immediately after graduation. If you are not able to make payments when the time arrives, contact Enrolment Services to pick up the forms necessary to apply for interest relief and contact the bank branch where you negotiated the loan in order to make payments.
Your bank can also provide you with information about income-sensitive and extended-repayment plans. Do everything you can to avoid becoming delinquent or defaulting on your student loans, otherwise your credit report could be damaged, which could affect your ability to rent a home or even secure jobs.
Resource: OSAP Repayment Information. Includes information for registered students, students on PEY, gradutes and students who are required to withdraw from the Faculty.
If you are still in school or planning to return to school, ensure you have researched scholarships, grants, and bursaries available to you. Visit the Registrar’s Office or the Enrolment Services office for bursary forms and scholarship information. Every year, there are scholarships that go unclaimed because students are not aware they exist or do not feel they have a good chance at securing one.
Take advantage of tax breaks offered to students. Students can deduct the interest on their student loans and claim part of their tuition. Become familiar with your tax return and make sure that you are not missing any opportunities to minimize the amount you pay. Do not assume that whoever is doing your taxes is maximizing your benefits. Mistakes or oversights can cause you to overpay, or, if you underpay, there will be penalties and delayed returns.
Budgeting Your Money
Creating a budget is easier than it sounds. Start by identifying your fixed expenses and spending patterns to get a better idea of where you can afford to cut down on expenses.
A good way to save is to simply set aside 10% of every paycheque and place it into a special savings account. If you look at the money as being ”untouchable,” then you will be motivated to find a way to stretch your pay cheque further. You will also have the luxury of having savings set aside for emergencies. Benjamin Franklin once said, “Beware of little expenses. A small leak may sink a great ship.” It’s the little things that are costing you thousands of dollars a year. Here are a few ways to cut hidden expenses:
- Look for ways to avoid spending before rushing out to solve problems with an outlay of cash. It is less expensive to repair a broken screen than to replace it.
- Pack your own lunch, snacks, and drinks—it’s amazing how seemingly small amounts add up over time.
- Eliminate unnecessary expenses—special cable channels, magazine subscriptions, or driving to work.
- Break costly habits—smoking, gambling and eating out are huge money-grabbers. Stay in and be creative.
- Save money and energy by running electricity-intensive appliances at night when the rates are lower.
- Delay purchases until you have shopped around for the best deal.
- Buy used instead of new. Try estate sales, yard sales, consignment shops, etc.
- Learn to do more things yourself—e.g., cooking, home or auto repair, gardening, and home remodeling.
- Use coupons and faithfully bank the savings.
Resource: U of T’s Student Budgeting Tips
RRSPs and Investments
An effective means of increasing the power of your savings, and one highly recommended by planners, is the use of RRSPs. They not only allow you to invest your money in a variety of vehicles and avoid paying tax on your capital gains, but they also allow you to deduct the amount of your contribution from your previous year’s income. This can facilitate a greater income tax refund in the short term and can allow you to start saving for a down-payment of a home or for retirement.
It is important to start early. Consider the following example: if you invest $2,000 each year into a tax-sheltered RRSP from the age of 21 to the age of 35, it will be worth over $1.2 million by the time you are 65 (based on a 10% compound interest). If, on the other hand, you put this off until you are 35 and deposit $2,000 each year until you are 50, it would be worth less than $300,000 by the time you are reach 65. Time is on your side if you start now. Putting away as little as $50 a month will quickly add up and will help to develop good financial habits.
Avoid investing or participating in mutual funds or high -isk stock adventures without first discussing your financial plan. Budget with someone who has a good grasp of the fundamentals of investing in order to avoid making many of the common mistakes of first-time investors. Research thoroughly your investment choices before committing yourself to a long-term plan where there may be hidden costs. Most financial service organizations do offer some form of financial planning counselling, so don’t hesitate to ask for advice.
Use the education cost calculator, budget calculator and loan repayment calculator to organize your finances.
Canadian Bankers Association
The Canadian Bankers Association has great budgeting tips, strategies and information about credit and investing.
The Debt-Free Graduate is filled with useful tips and has links to several online resources including budget calculators, recipes and saving tips.
This website includes a budget worksheet, educational expense calculator, information on government student loans and budget tips and tricks.