Transitioning from the life of going to school to one of working and living on their own is a big shift for most young adults and grads. It’s often the first time they truly need to be self-sufficient.
Here are 5 of the most important things young adults can do to start managing their finances well:
1. Understand Your Health Care Plan - Sign Up for Coverage
Ensure that your health care plan is adequate. You will no longer be covered under your parents’ extended health plan (if you were as a student), so you need to figure out what your coverage is through your own employer. There may also be some differences in provincial health care services if you move from one province to another.
Young adults don’t necessarily think about health care and extended benefits because it’s always been taken care of by their post-secondary school plan or by their parents. Once out on their own, they need to make sure they have sufficient health care coverage, before they actually need it.
2. Establish a Personal Budget
Creating a realistic budget takes time. Now that your spending patterns and needs are changing, you will need to track your spending to see where your money is actually going. You’ll also need to plan for expenses that you’ve likely never had to plan for, including rent, insurance, groceries and savings. Being organized with your finances matters.
Setting money aside for annual expenses and emergencies is crucial if you want to avoid ending up in debt. When something comes up, as it always does, you’ll have the cash on hand to pay for it without plastic.
Related: What is Budgeting?
3. Pay Off Debt
You need to allocate funds in your budget for debt repayment. If you have student loans, repayment will start 6 months after you ended your studies. You may have some credit card debt that you need to pay off. Student lines of credit or other borrowed education funds will need a repayment plan as well.
Many young people today have come to accept that debt is a part of life. It certainly doesn’t need to be, so find ways to aggressively pay down your debt so it doesn’t limit your future choices and opportunities.
4. Separate Needs from Wants and Make Wise Spending Choices
Many grads make the mistake of financing a new car and other large ticket expenses as soon as they find their first real job. Large purchases are about more than just being able to afford the monthly payments; it’s about being able to afford to pay the debt off.
Learn to live within your means, eliminate existing debt and understand the value of delayed gratification. Saving up to purchase items is a lot cheaper than buying on credit.
5. Invest in Yourself - Learn About Personal Finance and Become Financially Capable
There are a number of great Canadian books that cover all aspects of personal finances, like ”Findependence Day” by Jonathan Chevreau. Many are entertaining and have associated blogs. As you learn about various aspects of personal finance, beyond “paying yourself first,” you will soon discover that there are steps you can take to ensure your long-term success.
Young adults, you also have a serious advantage working in your favour – you have time on your side and can leverage the magic of compound interest! The more you learn, the better equipped you’ll be to make decisions that benefit you in the long run. And if you think that you have more excuses than money, check out Sasa Jurovicki's Bad Excuses for Not Investing When You’re Young.
Information and Skills Are Key to Successful Money Management
Times are challenging for today’s grads. You need to arm yourself with information and develop the money management skills to make sound decisions that will help you achieve financial success.