If you had the chance to speak to your younger self, what advice would you share? Would you encourage going back to school after quitting that job you hated? Would you share your financial wisdom?
It’s common now to hear adults speak about what they would’ve done differently with their finances if only they knew better in their 20s. Luckily for you, we’ve compiled some key financial advice to help you be proactive and set your future self up for success.
Save, save, save
Landing your first job is exciting. You get new responsibilities, new friends and your own source of income. You finally have money in your account to use for whatever you want. Whether that be paying rent, going for dinner, or buying new clothes, and it can be easy to get caught up in it all.
More often than not, you may find yourself living paycheck to paycheck for no other reason than your pesky overspending habit. Although many of us go through this, your older self is shaking their head. Having money does not mean you need to spend money. Oftentimes, you’ll be better served if you keep your money safe in your bank account rather than in a brand-new iPhone.
Financial advice to your younger self: set up a saving strategy and try to follow the standard rule of thumb of saving 20% of your after-tax income. You have a long life ahead of you with many purchases. Focus on those that truly matter and don’t just buy because you can.
Budget & be conscious of your money
To help you save and be actively aware of all the inflows and outflows in your accounts, your younger self says it’s a great idea to start using a budget.
A budget tailored to your lifestyle will help you plan ahead and organize your finances so that all your bills are paid on time. Additionally, some money is going into savings, and you still have some leftover to allocate towards the splurges you enjoy.
To learn more about budgeting, check out our blog post here.
Learn About Investing
Once you’ve found a savings strategy that works for you, it’s time to start thinking about investing your income. Something your younger self would thank you for.
Although having your savings sit in your bank account is great, it’s a passive way to use your money. Why let your savings sit patiently when it could be invested and grown into a larger sum!
Investing your money is a great way to have your savings work harder for you and deliver lucrative returns. That being said, investing strategically is not always easy and often requires a lot of work. Make sure to educate yourself and even consider working with a financial advisor so that your money is invested wisely.
Contribute to Your RRSP
Have you opened a Registered Retirement Savings Plan (RRSP)? If not, you probably should, and your younger self regrets not doing so sooner.
An RRSP is a tax-advantaged account that you can pay into each year to begin saving for your retirement. How it works is, each year you allocate a certain percentage of your income to this account and the money will be stored away until you retire. The immediate benefit of an RRSP is that you are not taxed on the income that you allocate towards this account. This means your present annual tax bill will be lower than if you pocket your entire income.
Long-term, by contributing to your RRSP each year, you should have a sizable balance stored away by the time you retire.
Two things that are important to note with your RRSP, firstly, the account is not entirely tax-free. Although initially, you’ll save on taxes, when you withdraw this money, you will be charged the due amount. Secondly, the maximum amount of your income you can allocate to your RRSP is limited by the RRSP contribution limit. This maximum amount changes year-to-year, so make sure to check and avoid over-contributing!
Following these tips and actively working towards building yourself a strong financial future is an investment you’ll never regret. Start now and break the status quo of wishing you could give financial advice to your younger self!
Be sure to tune back in throughout the month of November for more from all of us at Centum Home Lenders. We are always willing to help answer your questions directly. You can get in touch with us here!