Congratulations on graduating from college! But before you start exploring the next chapter of your life, you need to have a strong financial foundation. If you're not quite sure where to start, here are the five finance goals that every fresh grad should have:
1. Creating a Budget Having a budget in place is key to properly preparing for your financial future. Although it sounds like a simple step, creating a budget means you're taking charge of your money, so you know where each dollar you've earned or saved goes. There are various approaches to budgeting, and the most appropriate one depends on your source of income and lifestyle. However, it is important to make sure you allocate at least 20% of your income for savings, to ensure that you have enough money for the future while increasing your wealth, too. 2. Lowering Your Student Debt If you feel like you've gotten your diploma with a major burden already on your shoulders, you're not alone. Global News' post on student debt in Canada reveals that the average amount that fresh graduates will carry is $26,000. Not to mention, the price of your student loans can get even higher during the six-month grace period, because although you don't need to pay during this time, the interest will begin to accrue on your debt within this period. Paying off your student loans should be a top priority. Neglecting them will not only cause the amount to significantly increase, but it might also end up becoming a financial burden you'll carry even when you retire. This is why you should set aside money for payments in your budget, as this will help you chip off your debt consistently.
3. Controlling Your Credit Having a credit card is a big financial step that most take when they graduate from college. While it may be exciting to spend once you have it, you need to be wise with how you use it. Banks care about your balance and payment history, as they will determine your credit score — basically, your financial reputation — based on how you control your credit. Petal Card’s guide to ‘The Best Ways to Build Credit’ highlights the importance of using a credit card responsibly, explaining that you should try to use less than 30% of the total credit given to you across your credit card(s) at any given time. Around 35% of your credit score is paying these credit card bills on time, too, so be sure to pay on time every time, as late payments will remain part of our credit report for up to seven years. Being responsible about payments can go a long way in letting you start your adult life on the right financial footing. 4. Learning the Basics of Investing Investing might seem intimidating, as it's a process that many usually leave to professionals and brokers. But now is the best time to start learning the fundamentals of allocating your funds to an asset, as investing is one of the most effective ways to grow your wealth over time. And as we shared in our list on 'Ways of Increasing Passive Income', investing in a high-yield savings account or high dividend stocks will help you increase your income with minimum effort. Learning how to invest early on will help you reach your financial goals much quicker. 5. Preparing Your Retirement Fund On that note, it's never too early to start securing your financial future as well. After all, long-term thinking is a crucial component of being financially stable. Indeed, the Financial Post's article on Canadians' retirement savings reveals that more than a third of the population have nothing to show for in their retirement fund. If you don't start saving for your retirement, you could experience a myriad of financial problems in the future, such as living from paycheque to paycheque, drowning in debt, and even burdening your family. To get a head start on your post-work years, you should first set an ideal age for retirement, as this will help you understand how much you should be saving. From there, you can open a tax-free savings account where you should deposit money every month. Or, you can opt to open a Registered Retirement Savings Plan, which places 18% of your yearly income into a savings account.
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The article was written exclusively for Ukiyoto Publishing by Laura McKenzie
Laura McKenzie is a freelance software developer who has mastered the art of budgeting after deciding to follow her dreams of travelling the world. When she’s not busy working or catching a flight, she enjoys cozy days at home with her dog, Daisy.