Arti Patel of the Huffington Post Canada writes an insightful article for young Canadians on financial literacy. Originally posted on huffingtonpost.ca.
Financial Advice For Young Adults: Tips For 20-Somethings
When most people think of 20-somethings and disposable income, they picture a group of young adults disbursing money frivolously and leaving their futures behind. But in reality, most youth want to have a grip on their finances and start saving as soon as they can.
Financial priorities for Canadians between the ages of 18 to 34 don’t seem to look all that different from those older than them: 49 per cent want to own a home, 48 per cent want to reduce or eliminate debt through regular payments and 39 per cent of youth want to start an emergency savings fund, according to a recent RBC poll.
“People aspire to own a home and this is a time when people want to,” says Melissa Jarman, director of student banking at RBC.
Jarman says to start saving money, people need to start figuring out where they’re spending it. “People need to rethink their spending, regardless of age. When you think of somewhere that your money is going to, like buying lunch everyday, a lot of people spend a lot,” she says. To break it down in simple math, $10 a day on lunch is $50 a week and $2,600 a year, she notes.
But this doesn’t mean you can’t have any fun. If going on a vacation once a year or blowing a few bills on alcohol-filled nights is your idea of fun, budgeting and saving for the things you want to do won’t hurt your bank account.
Keep Some Wiggle Room
The key, Jarman says, is to live on less than you earn. Keep some wiggle room for youself so you don’t spend close to or above your limit. When you get your next paycheque, try to save more — at least three to ten per cent — and spend less.
Get Used To Saving
Save, even if it’s just a few dollars at a time. As you start your career, paying down student debt and planning major purchases like a car or first home can make it difficult to save. The trick is to incorporate savings into your budget before you get accustomed to spending it every month, Jarman says.
Emergency Funds Are For Emergencies
“As a general rule of thumb, an emergency fund should be about three times your monthly expenses if you are single, and six times your monthly expenses if you are married or have children,” Jarman says. Opening a high-interest savings account will help you earn money through interest.
“D” Is For Discipline — Not Debt
Organize your debt in order of interest rates and pay off the debt with the highest interest rates first. You may also want to consider consolidating all of your loans under one umbrella, with a lower interest rate if you can, Jarman says. Make your payments on time and, when you can, pay more than the minimum payment. Missing payments can hurt your credit score and should be avoided at all costs.
Let’s say that, on average, you spend $10 a day on lunch. That’s $50 a week and $2,600 a year. If you earn $30,000 a year, for example, you would save up to nine per cent of your salary by preparing lunch at home, Jarman says. Saving on these simple costs leaves you more money to save with a RRSP (Registered Retirement Savings Plan) or TFSA (Tax-Free Savings Account).
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