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Soon there will be a new class of ’21 graduates who will be finding full time jobs and managing their finances on their own for the first time.
Since most universities don’t offer financial literacy education, college graduates are left with little-to-no knowledge when it comes to managing their money. Bills and rent and car payments start to add up very quickly, and if you’re not careful, you could find yourself in a whole lot of debt.
We’ve identified the major money mistakes that most grads are guilty of making early in their career, as well as how you can avoid making the same ones.
When you land your first job and receive your offer letter with your new salary, it’s easy to get excited and start making decisions about where you can afford to live and what car you can afford to drive based off of all that money you’re now making. But the reality is, all that money will not make its way into your bank account.
You need to account for taxes and other payroll deductions. Make sure you read your first paycheck carefully and understand how much you’ll actually bring home each month before making any major financial decisions.
If you find yourself spending more money than you are taking home, it’s time for you to make some cuts.
And by solid we mean accurate, thoughtful, and all-inclusive. The key to feeling secure in your finances is knowing how many pennies you’ve got in your piggy bank and exactly where they all go every month. You’ve got to think about everything–rent, groceries, utilities, evenings out, your Prime membership, car payments, insurance, your Mom’s birthday present, and the list goes on. You’ll also need to factor in saving each month for an emergency fund and retirement.
Experts suggest that about 50% of your take-home pay should be used towards your needs, 20% should be going into savings and that leaves you with 30% to spend however you’d like. See, budgeting doesn’t equal boring! You can still enjoy the things you love–just keep an eye on your budget while you’re having fun.
Click here for some tips on how to create a well-thought-out budget.
Student loan debt is an easy one to overlook when you’re initially creating your budget. Since most student loans come with a grace period, many recent grads make the mistake of finding a place to live or signing a lease for a vehicle before knowing when they have to start paying back their student loans and how much the monthly payment will be.
Your student loans are a fixed cost that needs to be factored into your budget and needs to be considered before making important decisions regarding your money.
Just like eating well and exercising, saving money is a habit and it’s one you need to start practicing from day one. But still, we hear it all the time, “I’ll start saving later.” Don’t make this mistake, grads (or anyone who’s reading this and isn’t currently saving!).
The better move is to start saving now and get into the habit of paying yourself first. Saving shouldn’t be an afterthought. It should be the first thing you do on payday.
Pro tip: set up an automatic transfer for each payday to move some of your cash into a savings account.
Also, while we’re on the topic of saving money, let’s talk about retirement. This is something else you need to start saving for from day one. Even small contributions in your 20s will yield big results later in life.
On top of waiting to save for retirement, another mistake that recent graduates make is not taking advantage of their employer’s matching program. If your company will match your RRSP contributions, they are basically offering you free money–do yourself a favour and don’t pass this up!
Despite your best efforts and intentions to avoid the above mistakes, sometimes life happens and student loan debt and other debts can become overwhelming. If you need help managing your debt and would like to discuss your options, reach out to one of our experienced debt advisors now.
Licensed Insolvency Trustee
Greg Best enjoys working with clients to create solutions for their financial needs.
CPA, CA, CIRP
Licensed Insolvency Trustee
Chris Sinclair believes a practical approach is required to solve serious financial difficulties.
Cynthia’s goal is to ensure that every client feels respected and understood and to instill hope that they can get their life back by giving them the fresh start they deserve.