My name is Liam Broe and I am the Director of Finance for the 2018-2019 year. I’m currently in my 3rd year of the Management Economics and Finance program. As a student I’m going to facing a large amount of debt when I graduate. One of the biggest problem’s students face today is the lack of knowledge when it comes to managing their personal finances. You don’t need to be a finance major to understand the basics of saving and investing. The next 5 years after you graduate will set you up for the rest of your life financially. Most students don’t have a plan for how they will manage their debt and start to invest for retirement. Both of these are critical and the earlier one starts the better. Here are my three points on how to successfully plan your financial future:
1. Budget, Budget, Budget
Setting up a budget is critical to staying on track for your financial goals. It is very easy to deviate from your budget which in the short term seems like no big deal. However, these little deviations over time can leads to some big changes. First rule in making a budget is to put away 20% of your income away. 10% needs to go towards your student debt and 10% goes towards personal investing. The second rule is to allocate a certain amount of spending money and stick to that amount. Credit cards are great for building up your credit and should be used when paying your bills, but they can be risky when it comes to entertainment money. My trick is to pull it out in cash. Therefore, once you're out, you're out. This will help you from going over the budget.
2. Pay down your debt first!
Paying down your debt is the most critical point in securing your financial future. OSAP says you have to start paying it back six months after you graduate, but you should start the 1st day after you graduate. The miracle of compounding interest can become a nightmare really quick when it comes to debt; especially when that debt is 5 figures. Also, student debt is the only debt that isn’t forgiven when you declare bankruptcy, so it isn’t going anywhere. Your financial success is almost dependent on how quickly you can erase the liability on your personal balance sheet. Yes, paying it off isn’t easy and can require sacrifices in other areas of your life, but it will pay off in the long run and will free up lots in your budget once it is gone. Remember the longer you put it off, the bigger it becomes and therefore the harder it becomes to pay off. The biggest trick is to consistently put away at least 10% of your budget towards paying it off, as well as putting any bonuses or tax returns towards it.
3. Start to plan for your retirement
Its hard to imagine saving for your retirement when you haven’t even received a full-time job yet. However, the earlier you start the better you will be off. I know that seems obvious but its amazing how little Canadians actually have saved up. The average Canadian is 1 paycheck away form not being able to pay their bills. Living paycheck to paycheck is the biggest killer of not saving for retirement. This comes back to my first point of creating a strict budget to follow. It may suck to have to go without in the first couple of years, but once you get a sizeable amount to invest, your money starts to work for you. The two keys to saving up for retirement is to first save up three months pay as an emergency fund in cash or in a GIC (Guaranteed Investment Certificate). This is important in case you go through a job loss or have some unexpected expense you couldn’t get away from. The second is to save up enough to invest. There are many ways depending on your lifestyle. If you have less then $10,000, I would just invest into a market index like the TSX/S&P 500. If you have over $10,000, you can start to diversify if you are comfortable or stick it into an ETF or mutual fund. The average annual returns for the S&P 500 from 1927-2016 were 12%, with little volatility. This means in simplest terms that if you leave you money in the stock market for a very long time, you will make a good return regardless of a bad year or even a recession or two. Once you have started to invest the miracle of compounding interest starts to work and will do wonders for you when the day comes to retire.
I hope you found my personal financial tips helpful, happy saving!
Director of Finance, DECA U Guelph 2018-2019