While universities may appear to be debt-making machines, financial advisers say good planning can have you graduating in the black.
Anna Conner of Sun Life Financial says it’s possible if you follow three rules: Find yourself financially, stop the leaks, and save/invest. To be extra safe, protect that investment with life insurance.
“Start with a plan,” she says. “You have a goal: To graduate with your degree. You have to figure out how you are going to do that from a monetary point of view.”
Ideally, pay for university out of your savings, costing nothing in interest. If you don’t have tens of thousands of spare dollars, you’ll need a student loan.
Financially, “you have to know where you’re starting from to be able to get where you’re going,” she says. “You have to open up your bank statement, your credit card statement.”
It’s tempting to throw it in the drawer and just make the minimum payment, but that adds up. “Look at it this way: Every time you pay off a 16 per cent interest rate credit card debt, you’ve just made 16 per cent return on your money,” Conner says.
Next, Conner recommends tracking all of your expenses for two months. “You’ll be amazed at how much money you’re leaking,” she says. “Stop the leaks.”
With your economic ship patched up, it’s time to chart your course. For short-term savings to cover a down payment for a home or to pay down a debt, Conner likes TFSAs (tax-free savings accounts).
“You can do it in a short-term money market so that you have fluid cash and can draw your money out very quickly, or you can invest it for a longer range in things like mutual funds, GICs, etc.,” she explains.
If you can put the money away for longer, invest. “I’m a firm believer in getting your money into the markets at a young age,” she says. People get scared by the bad bear runs, she says, but the bulls always win. “Over the last 50 years, we’ve had about a 10 per cent return,” she says. “For young people, you’ve got the ability to allow the markets to do their thing.”
Either way, 10 per cent of earnings — even as a student — should be socked away.
Finally, consider buying life insurance to guarantee your future insurability.
“When you’re young and healthy, it’s extremely inexpensive to pick up a cheap-term insurance that will carry them through until they can afford the Cadillac,” she says.
If you wait 10 years, developing diabetes or MS, or a range of other conditions, could make getting life insurance next to impossible.
Hana, a blogger at York University’s YUBlog, says the most important thing is to live thriftily. Live at home, take public transit, pack a lunch, throw house parties and buy second-hand, she urges.
“For most of us, being a student is synonymous to being short on cash for four years, but there are a few ways to make the pinch more bearable,” she writes.
Low-cost accounts
You have probably heard the expression “look after your nickels and dimes, and the dollars will take care of themselves.” In order to collect those dollars, low-cost bank accounts can represent an interesting solution.
Low-cost bank accounts cost less than $4 a month. They offer such features as a debit card, cheque-writing privileges, a number of free in-branch transactions, and a monthly statement or a bankbook.
As several banks have agreed to offer low-cost accounts, you should shop around for the kind of account that best suits your banking needs. For example, you may prefer to do your banking through a teller. Some banks may charge extra for some in-branch services (such as bill payments) on top of your regular monthly fee. Having this type of information can save you from any surprise fees on your bank statement at the end of the month.
To make sure you understand the terms and conditions of the account you choose, the Financial Consumer Agency of Canada recommends you find out:
• What the monthly fees are;
• What types of transactions are included, and how many;
• How much it will cost for transactions over and above your monthly limit;
• What extra fees may apply for specific services (such as bill payments).
– News Canada
