Overview
Confronted by an intensely competitive job market, high housing costs, and a high cost of living, young adults today find themselves in a difficult predicament. However, with the eight smart financial tips below, millennials and Gen Z can more successfully navigate the current economy.
Tip #1: Adopt a Budget
A budget is a must for anyone looking to manage their cashflow more effectively.
A wide variety of budgeting methods exist, such as the following:
- Zero-based: Assign every single dollar of your income to a specific purpose.
- Envelopes: Put the cash you’re going to spend in a given category that month in a specially designated envelope. Once that envelope is empty, you cannot spend any more money in that category.
- 50/30/20: Allocate 50% of your income to needs, 30% to wants, and 20% to savings and debt repayment.
- Pay yourself first: As soon as you receive your paycheque, put some of the money in your savings.
No matter which budgeting method you pick, make sure you stick with it long-term to see results.
Tip #2: Start an Emergency Fund
A staggering number of Canadians – one in four, according to Statistics Canada – say they cannot cover an unexpected expense of $500. Life is full of unpredictable events. The inability to cover unexpected expenses leaves many Canadians vulnerable to sudden financial shocks.
To safeguard your financial future, consider starting an emergency fund. The sooner you start, the better off you’ll be. Smart small. Even a small amount of money set aside every week will accumulate over the long term. For example, $10 set aside per week would result in $500 in savings in 50 weeks, which is already sufficient to deal with some unexpected emergencies.
Tip #3: Raise Your Income
If your income does not cover all your expenses, you may need to take proactive steps to increase your income. While it may seem nearly impossible in today’s competitive economy, there are options.
One avenue could be to retrain for a more lucrative career. Many online courses and certifications are available in a wide variety of fields, often for a low fee or even for free. You may obtain certifications in data science, UI/UX design, software development, graphic design, and many other fields. In our increasingly technology- and knowledge-driven world, high technological literacy is apt to pay dividends.
Another option is to take on a part-time job or weekend gig. Once you have additional income coming in from your side gig, you can more easily cover your everyday expenses and perhaps start saving to acquire additional education or learn new skills.
Yet another option is to take advantage of online platforms to sell your unused stuff, art, knowledge, expertise, e-books, or anything else of any value. If you have monetizable skills, products, services, or knowledge, it may be possible to turn a profit online. However, like all other avenues, it is not easy and will require perseverance on your part.
Tip #4: Start Planning for Retirement Early
While you’re still in your 20s or even early 30s, you may think retirement is far away and almost irrelevant to your life now. However, the years will pass quickly, and without proactive action, you may end up without significant retirement savings. The time to act is now – start saving and investing money. Registered Retirement Savings Plan (RRSP) contributions are tax-deductible, which may help you alleviate your overall tax burden. Just make sure you have your RRSP contribution receipts on hand, in case the Canada Revenue Agency (CRA) wants to verify the amounts stated on your tax filing.
Tip #5: Automate Your Bill Payments
Do you worry about missing payment due dates? Automating your bill payments may help ensure that you never miss a payment due date again, and you won’t even have to think about it. The payments will be debited from your chequing account or charged to your credit card automatically, without your having to do anything.
Most bills can be automated, oftentimes including rent, phone, Internet, hydro, and more. Check the billing section on your service provider’s website and whether there is an option to automate your payments and sign up either for a pre-authorized debit (PAD) plan or a pre-authorized payment (PAP) plan. Once in place, payment automation may help you stay on top of your bills.
The key point is to ensure that you have sufficient funds in your account to cover the necessary payments. Otherwise, you may be subject to non-sufficient funds (NSF) fees, which can be high and negatively impact your credit score.
Tip #6: Improve Your Credit Score
Your credit score has an outsized impact on the loan terms you may get and on your eligibility for higher-quality rentals and mortgages. A low credit score may prevent you from accessing many financial products and services. Therefore, it’s important to take proactive steps to improve your credit score.
Here are some common-sense tips:
- Pay your bills on time. Automating your bill payments, as mentioned in tip #5, may help with that.
- Lower your credit utilization ratio. Keep it below 30%.
- Ask for a credit limit increase, but don’t increase your spending!
- Sign up for Credit Verify to monitor your credit health and automatically catch errors on your credit report.
- Don’t max out your credit cards.
- Pay off your debt(s) and lower your debt-to-income ratio.
While it may be easier said than done, these steps are crucial to improving your credit score.
Tip #7: Optimize Tax Deductions
As mentioned earlier, your RRSP contributions are tax-deductible and can be a great way to optimize your savings over time.
Ontario residents may qualify for various tax credits and benefits, including the following:
- The Ontario Trillium Benefit (OTB): Intended to assist with energy costs, the sales tax, and property tax.
- The Low-Income Workers Tax Credit: Personal income tax relief for low-income workers.
- Ontario Child Benefit: For parents who have children under 18 years of age.
- Assistance for Children with Severe Disabilities: For parents who have a child under 18 years of age with a severe disability.
- Ontario Disability Support Program (ODSP): Intended to help people with disabilities.
- Ontario Student Assistance Program (OSAP): Financial aid for college and university students.
See Ontario’s government website for more information.
Other provincial government websites:
Alberta’s tax credits and benefits
Manitoba’s tax credits and benefits
British Columbia’s tax credits and benefits
New Brunswick’s tax credits and benefits
Newfoundland and Labrador’s tax credits and benefits
Nova Scotia’s tax credits and benefits
Prince Edward Island’s tax credits and benefits
Quebec’s tax credits and benefits
Saskatchewan’s tax credits and benefits
Tip #8: Understand the Basics of Investing
Financial literacy requires some understanding of investment strategies. For the average investor, buying index funds like the S&P 500 is likely to be the safest bet. Buy index funds and let your investments grow until your retirement age, thanks to compound interest. The sooner you start investing, the more opportunity you will have to grow your investments. Don’t engage in risky or speculative investment strategies. This often requires expertise and knowledge that may not be readily available. Focus on stable, common-sense, long-term investment strategies that suit the average investor.
Final Thoughts
Navigating today’s economy is particularly challenging for young adults, who are just getting started in the world of work. Therefore, young adults would benefit from adopting the above financial strategies to help ease their passage through adulthood.
Life is tough. Sometimes, our expenses outpace our financial resources. If unable to cover your expenses, you may want to apply for a personal loan online via LendProConnect. We don’t check your credit score or credit report during our simple and easy online application process. People with less-than-ideal credit scores and histories may qualify for quick funds.
