Today’s young professionals face greater financial challenges than previous generations. As such, starting good financial habits early in one’s career is more important than ever. Post secondary education costs more than it ever has, student debt loads are higher than they’ve ever been (which is burdensome despite record low interest rates), the entry-level job market has become increasingly competitive, and housing costs are significantly higher than they used to be (relative to average Canadian income levels). Fear not; financial independence is achievable! Here are five financial habits young professionals can implement to help secure their financial future:
1. Live within your means
Spending less than you earn may seem like an obvious habit; but can be a big challenge for anyone. Busy social lives, new independence, and ‘proper’ living quarters can take their toll on a young person’s monthly budget. Exercise control of your spending to ensure there’s enough left over at the end of each month for long-term savings, paying off debt, or making larger purchases.
2. Pay off debt
Paying down your financial obligations is a risk-free way to invest (where one’s after-tax rate of return is equal to the interest rate that their debt carries). OSAP loans begin to accrue interest just a few short months after graduation. In addition to student loans, credit card debt, personal loans, car loans, and other forms of debt can follow a university graduate into the early stages of their working career. It is of the utmost importance to establish some form of debt repayment plan. The sooner you’re out of debt, the sooner you can claim your financial freedom.
3. Start a long-term savings account
I could write an entire blog comparing and contrasting TFSAs and RRSPs. That said, TFSAs usually make more sense for young professionals. RRSPs tend to make better sense in the ‘peak-earning’ years of one’s career (the years when your marginal tax rate is at its highest). With the CRA’s recent increase of the annual maximum TFSA contribution level to $10,000, young professionals will typically have room to spare even if they’re already saving a few hundred dollars per month.
4. Focus on career growth
The first few years of one’s career typically aren’t the most fruitful. It is later on (in our 30’s, 40’s, and even 50’s) when we experience our ‘peak’ earning years. As such, it’s important for young adults to continue to develop professionally and strive for career growth. The savings that young professionals manage early in their careers can pale in comparison to their earnings potential, given the right career path.
5. Wait to wed and/or have children
I may take some heat for this final suggestion, but nowadays, more people are waiting to get married. Don’t get me wrong – deciding when to wed is a personal choice; but, young people must be cognizant of how much weddings can cost. Accordingly, it makes good financial sense to defer that expenditure – as long as your significant other is in agreement, of course. The same goes for having children. Waiting until you’re financially settled before starting a family can make the inherent costs of raising children a little lighter. Experts suggest that the current cost of raising a child until age 18 is $250,000 – and that doesn’t include post-secondary education. Again, as long as you and your significant other are in agreement, waiting to become parents can really reduce the strain on your pocketbook. More savings means less borrowing, and as such, deferral of expenses can save you money on many different fronts. It’s not easy sticking to good spending habits when you’re young – especially with all of today’s distractions. But it’s a lot easier to exercise a little control than scrambling to make up for lost time (and money) years down the road. Having your own unique and independent financial plan – and ignoring the financial noise out there – is an important step in securing a young professional’s financial future.
Personable and professional, Brent Soucie specializes in cross-border tax and financial planning for U.S. citizens and/or Green Card holders residing in Canada, as well as Canadian residents with U.S. employment and/or property. His clients include professional athletes, entrepreneurs, and corporate executives.
These articles are for general informational purposes only. Please obtain professional advice before taking any action based on this information. No endorsement or approval of any third parties or their advice, information, products or services should be implied by any references to third parties contained in any article. Trademarks cited in these articles are the respective properties of their owners.