Grads need to establish good financial habits early: experts

Depositing the paycheque from your first real job in your bank account can be a bit of a rush, leaving you feeling flush with cash and ready to put the frugalities of the student lifestyle behind.

But experts say new graduates starting their first jobs need to establish good financial habits early to set themselves up for success later in life.

Michael Allen, senior portfolio manager at Wealthsimple, recommends paying down debt first, especially if you have any high-interest debt such as an outstanding balance on a credit card.

A reduction in the amount you owe will also give you a guaranteed return in the form of interest you won’t owe on the amount you repay.

However, Allen says it’s also important to establish the habit of saving early, even if it’s just small amounts to start because they will add up. Starting early also gives you a chance to learn what it means to invest.

“Watching your accounts fluctuate in value, that’s a very important lesson that people need to learn because it’s going to happen when you’re investing in the equity markets,” he said.

Jennifer Auld of TD Canada Trust suggests continuing to live on a student budget for a couple of months while you make a plan, including establishing your short and long-term goals.

Once you’ve repaid any loans, Auld suggests you could allocate that money to savings, a change that would allow you to ramp up how much you put away with no change to your budget.

Allen says if your employer offers a group RRSP plan that includes a matching contribution, you should take advantage of that extra help for your savings.

“That’s free money,” he said of any employer matching contributions. “But for someone who is making less than $50,000 a year, a tax-free savings account is a great option, especially for people coming right out of school.”

Allen says new investors should also keep a sharp eye on the fees they are paying to ensure their savings don’t get eaten up. “When your fees are high you’re essentially padding someone else’s pocket instead of your own,” he said.