As a young person with an established career and a steady income, it can be fulfilling to watch your bank account grow. Although it may be tempting to spend your extra money on a vacation or a new big-ticket item, the Smartest Things You Can Do With Your Money is pay yourself first.
While financial planning can seem like a complicated task, it doesn’t have to be. Here are some of the smartest things you can do with your money.
#1 Create a budget and monitor spending
Cash flow is one of the most important things to be aware of, so knowing where your money is going is important. This means sitting down to create a budget.
To find out exactly how much you’re spending each month, start by determining your overall income. Then, calculate all of your monthly bills and expenses, and set savings and debt payoff goals. Record spending and track progress. Remember to be realistic and try to cut out frivolous spending.
#2 Save for big purchases
When it comes to setting money aside, you can never have enough. The key is to set goals and prioritize the things that you want or might want in the future such as a down payment on a house, a new car or other big ticket purchases.
To begin, get an idea of how much you will need to save, how long it will take to reach your goal and at what rate of return you may need your investments to grow.
#3 Contribute to an education savings plan
If you are starting a family or thinking about it, remember, the costs of pursuing education beyond high school can add up, and that is why it is important to set money aside as early as possible.
For Canadians, Registered Education Savings Plans or RESPs are tax-sheltered savings vehicles that can help to offset a child’s future education costs and are offered through providers like Children’s Education Funds Inc. (CEFI). When you open an RESP for a child, the Government of Canada will help by adding funds to the RESP through programs that encourage people to save.
#4 Contribute to a retirement plan
In Canada, workers have the choice to contribute to an RRSP or registered retirement savings plan. These plans provide employees a tax deferred way to invest and grow their retirement funds.
In addition, both plans have annual contribution limits and enable investment into a diversified mix of investments such as mutual funds, bonds, stocks and GIC’s. Also, get in the habit of increasing your contribution when you can. Even a small percentage can make a difference, either once a year or any time you get a pay increase.
Knowing that you’ve taken the steps to become financially prepared for the future is not only smart, but it can also help relieve money-induced stress that goes along with being a responsible adult.