Low-paying jobs, mounting student loans and soaring housing prices is enough to make most young adults feel pessimistic about their financial future. But like most things in life, planning and taking action can make affording life’s milestones much less stressful.
Adapting these not-so-secret (yet highly effective) practices will help develop the skills needed for successful saving. When important purchases (i.e. house, vehicle, real estate) can be put off no longer, you’ll be prepared for the challenge.
1. Clean up the past to move forward
It’s not easy to get excited about saving for your future when it feels like you’re always taking one step back. You’ve heard it before: paying off debt as fast as possible will put you ahead of the game. Not only will earnings turn into positive assets in your savings account, but you will be less stressed by the heavy burden of debt weighing on your shoulders.
2. Develop a routine
Set it and forget it. Automatic options that pull money from your paycheck and push it into a savings account are great to accumulate money without having to think about it. This ensures a portion of your money is being put away for future use.
Know the difference between a regular savings account and a TFSA: a regular savings account will likely not yield you the best results. Instead, invest your savings as tax-efficiently as possible into a tax-free savings account. The extra step required to withdraw funds from your TFSA will likely deter you from irrational or unnecessary spending. Strive to have 5-10 per cent of your salary every month put away into your untouched savings.
3. Smart savings strategy
When you’re young, preparing for major life milestones like your first home or future family can seem very overwhelming. When it comes to these life-changing investments, you can never be over-prepared. Save everything you can as tax-efficiently as possible in a TFSA or RRSP account.
*Keep in mind: Up to $25,000 can be taken out of an RRSP without penalty for a first time home-buyer. By doing this, you are eligible for a tax deduction, giving you more money, as you are saving on the deducted portion.
4. Debit, not credit
Lastly, focus on getting rid of all the high-interest debt you may have accumulated. If you’re without high-interest debt, you’re already ahead of the curve and can continue using these helpful practices to save for your future.
Spend what you have, not what you don’t have. This is a simple concept that is difficult to put into practice. Spending the income you bring in and only using a credit card when necessary is a sure-fire way to at least avoid accumulating debt as you look toward your future.
There are various credit options that provide lower interest rates and penalties for the times you really do need to borrow funds. Credit cards, as long as they are paid off, help build your credit score. It’s important to have a credit card, but it’s all about how you use it.
Life is unpredictable. You’ll thank yourself for your savings when unexpected purchases, circumstances or life milestones come your way. Don’t forget to talk to an advisor about your future plans and goals and let his/her expertise guide you along the way. No matter how much money you make, it’s all about what you do with it. The best way to predict your future is to design it.