You can’t have it all. You can’t buy what you want, ignore your student debt, and assume you’ve got lots of tomorrows to begin to build your finances. You need to set your financial priorities today and build a plan that will make it happen. Here are five simple money management tips to help you get started.
Pay Off Your Student Debt
Your student loan was interest-free while you were in full-time studies, but now that you are working the interest clock is ticking. The faster you pay off your student loan debt, the less you will pay in the long run.
Down the road you are likely going to want to buy a home. You may need to finance a car. Like it or not, with these needs often comes more debt. Focus on paying down your student loans early, so that when family and life needs grow, you have the capacity to borrow responsibly.
There is no better way to understand your money than to create a budget and monitor where your spending goes. If you are not willing to take the time to develop a formal personal budget, at a minimum you should set spending limits by category. If you’re using 50% of your take home income for rent, that leaves 50% left to allocate. Set some personal guidelines you’d like to follow – perhaps 25% for living expenses, 5% for play, 10% for debt reduction and 10% for savings.
Chances are when you were a student you lived on a tight budget. Just because you are working doesn’t mean you can now live like a king. Continue to live within your means and look for ways to save money. Going on vacation and bunking with a group of friends is a great way to have fun, while keeping the costs down.
Eat at home and brown bag it. Eating out takes a huge bite out of your wallet. Save your money by avoiding take-out, your morning coffee run, and having lunch at the food court. Limit your eating out to times that are important.
Embrace the magic of compounding. Start saving early, and often. It doesn’t have to be a lot, but the sooner you start putting money away, the faster it will grow. Start an RRSP and look into savings vehicles like a TFSA.
Automate the process. Financial planners have always promoted the concept of ‘pay yourself first‘ for a reason. If you have even a small amount deducted from your pay each period, you won’t even miss it. You will learn to live on the balance, making it much easier to maintain a savings plan.
Don’t Get Into Debt
Avoid debt like the plague. This is especially true if you are already carrying student loans. Make it a priority to pay off those debts before you take on any new debt.
Above all else, don’t fund living expenses with credit. If you are going to use a credit card, choose one that gives you rewards you can use (cash back is best) and pay off your balance in full, each and every month. While compounding interest may be magic when it comes to savings, it quickly becomes a curse when it comes to debt.
Avoid the temptation to accumulate debt, pay off what you owe, and get started on your savings and you will build a strong foundation towards achieving what you want in your 30’s, 40’s and beyond.