Knowing how to handle your money isn’t a game of luck. It takes time and effort to create and retain wealth. Like most things, learning how to manage your money takes work and is important to cultivate early on in life.
Last week our experts suggested tracking your spending to start assessing your finances. This week, they reveal how and the common misconceptions young professionals have about money.
“Don’t wait until you are 30, 35 or 40 to start (saving),” suggests Mark Hudon, CIM, CFP, certified financial planner of GP Wealth Management Ltd. However, in his 13 years of experience he says few people actually take this advice.
“The ones that do are always the most successful. It’s not necessarily about earning the most money. It’s what you do with what you have. Most people today are more concerned with looking rich than actually being rich.”
Financial coach and chartered accountant Robin Taub says, “everyone has overhead or committed costs which fall under three categories: Fixed overhead; variable overhead; and discretionary overhead.”
Taub explains that fixed overhead is committed costs and the amount doesn’t vary like rent or mortgage payments and car payments. Variable overhead can generally change monthly like groceries and bills. Finally, discretionary overhead are things that can be eliminated altogether such as entertainment, eating out, and gifts. Overhead you are committed to is not as easy to cut back on as discretionary.
“In your 20s most people can afford more discretionary spending, but as you get older ... and buy a house and a car it all gets expensive. It’s a good to learn these skills early,” she adds
Once you’ve created a spreadsheet and filled these categories, it becomes clear where you spend your money. Ideally you should be making more than you’re spending.
“When creating a budget, start by identifying your needs. Wants are a luxury,” says Sharman Lawson, financial coach and trainer. “If you can’t pay for your needs, your wants do not deserve to be listed.”
Save and invest
“Start saving. It may feel counterintuitive if you have a student loan or other debt, but start the habit right now anyway,” advises Zimmerman. “Make the savings specific — an emergency fund, a vacation fund, a down payment. There are lots of great high-interest accounts out there.”
Hudon agrees that the most common mistake is not putting money away for yourself. “Don’t wait around until the end of the month to set aside something for long-term savings. Have it automatically deducted from your paycheque and do not touch it! Set a goal to save and invest 10 per cent of every pay,” he recommends.
Taub adds if you aren’t contributing to a Retirement Savings Plan yet, you should be. These contributions have two tax benefits: They are tax deductible; and sheltered, meaning it’s not subject to tax.
“It’s never too early,” she adds. “You want to invest early and invest often.”
Kavita Gosyne, 26, is a vibrant young journalist. She writes about her transition from student to employee and the issues she faces such as office politics.