Your graduation ceremony just ended; the cap and gown gone. You’re a new grad! Congrats! But now you’re probably wondering what comes after this very expensive piece of paper that you just spent the last four years of your life on.
Your personal finances aren’t the first thoughts to cross your mind. You’re daydreaming about your summer vacation plans or stressing about finding your first job— and after all, you likely have more debt than money in your chequing account. However, there’s no better time than now to look to the future and start planning your finances! To help get you started, here are 5 tips to start you off on the right foot for the next phase of your life:
Keep Budgeting
You were most likely used to living on the cheap while you were in school. So, why not keep living within your means? Budgets help you understand how much money you’ve got and where it goes. The sooner you start, the better your future will be.
Goals are important. With student loans, a major goal might be paying them off as soon as you can. Having savings is also critical. In an unsteady job market, several months living expenses in the bank can be the difference between staying afloat, or getting into serious financial trouble. It’s also not too early to think about retirement. Save a small amount each month starting now, say $25 per month, and you won’t have to invest larger chunks every month later.
Pay Off Your Student Loans
Speaking of student loans, once you’ve started receiving a regular paycheque from your first job, you may be tempted to start spending it on all the things you couldn’t afford as a student. But if you have student debt, you should focus on paying it off as quickly as possible. Although student loans give you a six-month grace period to begin paying down the loan, interest on the loans starts to accumulate the day you graduate.
However, you don’t have to start paying your student loan back if you are earning less than $25,000 per year. Paying down the debt as soon as possible can help you to avoid substantial interest charges.
Open RRSP and TFSA Accounts
A Tax-Free Savings Account (TFSA) is a kind of savings account allows you to contribute up to $6,500 each year of after-tax income without having to pay taxes on any of the interest you earn. You can withdraw from a TFSA at any time without having to pay a penalty, and any unused contribution room is carried forward to the next year.
A Registered Retirement Savings Plan (RRSP) is a savings account registered with the Canadian federal government that is generally used to save for retirement. These accounts are often set up by financial institutions and can also be used for investments. An RRSP lets you contribute up to a certain percentage of your earned income and gives you a tax deduction for your contributions.
Again, there’s no tax payable on the growth in value of investments held inside the plan; however, withdrawals are subject to income tax. It therefore works well for savings you plan to withdraw in retirement, when your income and tax level may be less. You can also borrow from your RRSP to help buy your first home, under certain conditions.
Understand Your Credit Score (and Why It Matters)
Getting sent to collections may not mean much to you now, but believe us, you really don’t want a low score. The best thing you can know as a student is that you want to build your credit by doing things like opening a credit card and making consistent payments—even if it’s the minimum.
You definitely want to avoid any black marks on your credit rating—which happens when you miss bill payments (yes, even cellphone bills) or get sent to collections. While a credit rating might not mean much to you in first year, it will matter a lot when you apply for car loans, additional credit cards, and mortgages in the future—a low score means you’ll have to co-sign with your parents, or you’ll just get a big, fat rejection.
Moving Expenses
You’re probably looking for job and not everyone is lucky enough to work close to home. This may be news to you but, if your new job requires you to move at the very least 40 kilometres to its location, you may be eligible to claim expenses related to the move. Some eligible expenses include:
- transportation costs for packers, movers, in-transit storage and insurance
- travel expenses for your car, meals and hotels
- temporary living expenses for meals and lodging for up to 15 days
The CRA offers both detailed and simplified methods to calculate these expenses, depending on the nature of the expense. Keep in mind that the CRA may require proof that you did indeed pay these costs, so always keep your receipts.