That first job of yours
IN THE FIRST STAGE of financial life, a prominent marker is gaining that first job or source of income and becoming more independent. This is reflected by your ability to manage your budget; establish a good personal credit rating; protect the investment in your development; purchase a car, furniture and other possessions; move into separate lodgings; and start saving for emergencies and/or towards retirement.
Getting that first job can be so exciting! It is also the most pivotal time in establishing sound financial habits.
Carefully note your monthly pay, net of all the deductions. what benefit does each deduction provide? What are your planned expenses? In the early stages of working, it may be useful to keep track of how you actually spend compared to how you think you do or even how you may have planned to spend.
For example, buying lunch at $15 per day plus a $60 weekend outing with friends works out to $7 020 annually, whereas you may have planned to spend, say, $3 600.
This discrepancy may point you to taking cooking lessons so you can take home-made lunch to work and have a social life by entertaining friends with your culinary skills.
Also, your aim with a budget is to meet all of your costs from your earnings and avoid building up debt that would be difficult to repay.
How you use credit, particularly that first credit card, will help to determine your credit rating. Joining a credit union is recommended. Credit unions offer supporting help with budgeting and credit; you will have a say in the management of the credit union and be entitled to refunds on loan interest paid depending on the performance of the credit union.
Repaying your student loan or other financer of the cost of your studies is also a priority. Even if your parents/guardian/friend supported you and expect no repayment, a gift bought from that very first pay cheque would be a touching symbolic gesture.
Can you afford to purchase a car? There is the economics of this choice as well as the budget fit. This will also apply to furniture and appliances and whether you should rent an apartment.
Two other recommendations of establishing sound financial grounding at this stage are the purchase of term insurance for, say, at least ten times your starting salary, and the establishment of a Registered Retirement Saving Plan, RRSP.
In the short term, this insurance policy will protect the investment made to date in your development. In the longer term it can serve as support in purchasing real estate or other long term asset.
Early investment in retirement, either through your employer’s corporate plan or a personal RRSP, will help reduce the cost of retirement planning later.
These are some of the pointers of your transitioning to the second stage.
• Louis Fairsave is a personal financial management advisor providing practical counsel on money and estate matters. Her advice is general in nature; readers should seek personal counsel about their specific circumstances.