Dealing with post-grad financial woes
Watching a group of graduates celebrate their convocation in full regalia gives me “the feels.” The parental hugs, beaming faces and freshly minted degrees on proud display are a common scene this time of year.
New grads should take a breather and enjoy the moment. But as summer marches on, it’s time to leave the familiarity of the ivory tower behind and join the real world. Rent, bills, taxes and even studentdebt interest can creep up on you quickly.
Since a degree doesn’t come with a financial strategy for managing new income or dealing with old debts, the sooner you make a money plan after graduation, the more likely you’ll meet future financial goals.
Whether you’ve just graduated from post-secondary or you’re heading out on your own for the first time, here’s a road map for minding your finances. Keep living like a student Going from earning nothing to having a regular income is exciting. But resisting the urge to splurge and not blowing your early paycheques on stuff should be a priority for new grads.
Lifestyle inflation is real, and spending more as your income increases makes it difficult to reduce debt and achieve big financial goals such as saving for a home down payment. If you keep living like a student and saving the difference, your future self will thank your current self for being frugal. Make a student debt repayment plan Have a student loan, or even several? You’re not alone. A 2017 Ipsos poll found postsecondary students in Ontario graduated with around $23,000 in student debt last year, with loans spanning provincial, federal and private lenders.
A big mistake new grads often make is thinking they have a six-month, interest-free grace period. This is false.
Both Canada Student Loans and the Ontario Student Assistance Program (OSAP) don’t require repayments until six months after you graduate or leave school. But for the Canada portion, interest starts accruing right away.
This increased debt can be avoided by contacting your student loan provider right away and asking how interest is calculated.
This will determine if you qualify for a Repayment Assistance Plan, and calculate how long it will take to repay your debt. Check employer RRSP benefits If your new employer matches Registered Retirement Savings Plan (RRSP) contributions, you’d be a fool not to take the cash. Aim to contribute the maximum allowed from your pay to take full advantage of this generous benefit. Contribute to your TFSA Unlike an RRSP, you won’t score a tax refund by contributing to your Tax-Free Savings Account (TFSA) but everything you save, you keep — including all your tax-free growth.
You need to be 18 or older to open a TFSA, so new grads could already have five to seven years of contribution space available, amounting to $32,000 to $43,000 of room.
Despite the name, a TFSA can be so much more than just a savings account for holding cash. Use your TFSA to hold a variety of investments, including exchange-traded funds (ETFs), index funds, GICs, stocks, bonds and mutual funds. Do some homework on the Couch Potato Portfolio to learn about low-cost methods for investing your hard-earned cash. Switch your student bank account Your free student bank account may convert to a full-fee chequing account in the months after graduation.
Before getting dinged $5 to $20 each month in bank fees, go find a lower cost option.
Online banks such as Tangerine, Simplii Financial, and EQ Bank offer no-fee banking without having to maintain a balance, while many credit unions also offer competitive banking packages.
Finishing school and starting a new stage of life may seem daunting.
But whether you’re in the job hunt or starting a new career, aim to live on your current budget.
It’s tough out there, but I know you can do it.