Personal Finances – Things I wish I had paid more attention to post-graduation

For many years while I was in school, and even after I graduated, I did not pay too much attention to my finances. I did not properly save up to pay off my student loans at the time, and after I got my first job, all I obsessed over was saving enough money to pay it all off.  Looking back now, I definitely could have started getting into the habit of saving money and exploring the different options I had much earlier.  So, here are some things I wish I had paid more attention to, before and post graduation, that could help you.

Ways I’ve Saved Money:

My favorite B word: Budget. Thanks to the encouragement of my more financially responsible friends, I have now set up a monthly budget which helps me monitor and manage my monthly expenses. The budget also allowed me to better understand and plan my financial activities, such as knowing how much money I can invest and still have a good amount saved up for emergency funds, while still having enough funds to continue making my monthly credit card payments (don’t forget – you have to keep your credit score in check too).

One habit that I am happy to have picked up is automatically transferring a portion of my paycheck into a savings account. This can help you differentiate the money you can use for your daily spending from the money that you are saving and cannot touch.

Not sure how much money to automatically save up? Here are two questions to consider:

• What does your day-to-day routine looks like?
• What are your regular monthly expenses?

With those questions in mind, you can then manage and identify your different savings categories:

Types of Savings Accounts

In Canada, most individuals can choose to hold their money in a Registered Retirement Savings Plan (RRSP) or a Tax-Free Savings Account (TFSA). Both accounts have a contribution limit that is determined differently which you can find yearly through your Canadian Revenue Agency (CRA) account.

Registered Retirement Savings Plan (RRSP)

As suggested in the name, an RRSP is money intended for retirement.  The money that you contribute is untaxed, therefore, whenever you do withdraw these funds, you will be taxed on it. A benefit to an RRSP is that the money you contribute is tax-deductible.

 In some instances, you can take out funds from your RRSP account without being taxed, including withdrawing money for a Home Byer Plan or for a Lifelong Learner Plan.

For the Home Byer Plan, eligible first-time homebuyers can withdraw up to $35,000 tax free and they have up to 15 years to pay it back into the RRSP.

For the Lifelong Learner Plan, eligible individuals looking to go back to school can borrow up to $10,000 per year and they have 10 years to pay it back into their RRSP.

If you are interested in opening an RRSP account, you simply must be under the age of 71 and a Canadian resident, for tax purposes. You may also be fortunate enough to work at an organization that offers a Group RRSP, where your employer matches your RRSP contribution up to a certain percentage, so make the most of this employee benefit and consider maxing out the contribution matching percentage.

Tax-Free Savings Account (TFSA)

A Tax-Free Savings Account is the opposite of an RRSP. This is money that you invest after taxes have been deducted. This means you can withdraw money out of the account at any time and not be taxed. Another difference is that your contributions are not tax-deductible.

If you are interested in opening a TFSA, you simply must be 18 years or older and have a Social Insurance Number (SIN).  One thing you want to be very mindful of with a TFSA is to not over-contribute. Any amount you contribute beyond your provided TFSA contribution limit will be taxed, even if that amount was used to pay back money you have withdrawn from the account.

So, for example, if your contribution limit is $5,000 and you have already contributed that amount into your account, even if you withdraw $5,000 that year from your TFSA, you would have to wait until the following year to invest in your account again.

Additionally, any TFSA contribution limit that is unused will also be carried forward into the following year.

Depending on what you want to use your money for, and what your plans are in the future, either an RRSP or a TFSA are good options for long term investments.

Both an RRSP and a TFSA can be used towards purchasing long-term investments such as stocks, ETFs and mutual funds.  Here is a quick guide on what any of those things even mean, plus some other useful terminology:

Some important things to take into consideration when deciding on what to invest in include your risk tolerance, your capacity and ability to manage your investments, your knowledge of investments and markets, and diversification of investments. You can invest through a “robo” advisor (e.g., Wealthsimple), utilize an online brokerage (e.g., Questrade), or connect with an advisor at a financial institution.

Which option to use depends on your own preference. Wealthsimple, for example, utilizes an algorithm for investing, which allows the investor to be relatively hands off. They do not require a minimum contribution; however, they do charge a small fee.  For those who are more knowledgeable or want to know exactly where their money goes and what the state of the market is like, utilizing an online brokerage would probably work best. For individuals who would feel more secure having a professional who can manage their money and they can build a relationship with, working with a financial advisor would be a great fit.

All in all, two of the most important things to learn is being comfortable with your own personal finances and taking the time to learn how to better manage your money. You work hard for it, so make it work hard for you too! There are many resources out there, so do not be afraid to explore your options. Plus, if I was able to learn a thing or two, you can too.