Financial Planning

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Financial Planning Tips

(Text adapted from the Career Centre Library Tipsheet)

Financial planning is a skill most people are forced to acquire at some point in their lives. This is especially true for university students and recent graduates. The Engineering B.A.Sc. degree program can cost as much as $35,000 over four years. The current student debt situation, coupled with the high cost of living in the city, makes financial planning essential.

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.

Don’t panic! There are many people out there in your position—and resources to help you get through. Start dealing with your financial situation now by assessing your situation and setting priorities. Below is some general financial advice to help you:
Financial Planning 101 — Things you should know
Budgeting your money
RRSPs and investments
Internet Resources

Financial Planning 101: Things Your 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 immediately on paying off any accumulated debts. Credit card debt takes priority over student debts as it usually charges very high interest rates. 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.

Student loans

Keep in mind that you must begin payments on your student loan six months after your last day of full-time study. This can be of great significance if you do not find employment immediately after graduation. If you are not able to make payments when the time arrives, contact the Enrolment Services office (172 St. George Street) 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 give you 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 land jobs.

Please watch the following PowerPoint presentation for valuable information regarding student loan repayment: OSAP Repayment Information (.pps). This information will be of particular interest to individuals who will not be enrolled in full-time studies in September (e.g. PEY students, graduates, students who were required to withdraw from the Faculty).

Financial aid

If you are still in school or planning to return to school, ensure you have researched all the scholarships, grants, and bursaries available to you. Visit your registrar’s office or the Enrolment Services office for bursary forms and scholarship information. Every year, there are scholarships that go unclaimed because people are not aware of their existence or do not feel they have a good chance. Pick up a copy of the Financial Aid tipsheet for more advice.

What about taxes?

Take advantage of tax breaks! 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. For budgeting tips visit U of T’s student financial support page.

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.
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.

Investing

Avoid investing or participating in mutual funds or high risk 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.

Internet Resources

The following are online resources that can help you plan your finances:

Canlearn.ca
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.

Debt-Free Graduate
The Debt-Free Graduate is filled with useful tips and has links to several online resources including budget calculators, recipes and saving tips.

FundYourFuture.ca
This website includes a budget worksheet, educational expense calculator, information on government student loans and budget tips and tricks.