- His situation
In her twenties, without children, the single woman lives in a rental and begins to earn a good salary. Like many young people, she may have an expensive lifestyle: many outings, nice clothes, state-of-the-art electronic gadgets… She must watch her expenses to avoid consumer debt.
- His financial priorities
Analyze your expenses (and adjust, if necessary).
At this age, we are in a good position to start our active life with sound management of our finances. “Our financial resources are expected to increase, we have no responsibilities and a lot of time ahead of us, says Jocelyne Houle-LeSarge, CEO of the Institut québécois de la planification financière and president of the Question-Retraite organization. We have the means to set short, medium and long-term objectives. For example: buying an iPhone, planning a trip to France or saving for the purchase of a condo. “It is important to note all our expenses to understand how we use our financial resources, continues Ms. Houle-LeSarge. And if we find that we have taken bad habits, it’s a good time to correct them. If needed,
Pay his debts.
If you have consumer debt and student debt, you have to pay it off as soon as possible. “And we reimburse our credit cards as a priority, because they are the ones that cost the most in interest charges, indicates Caroline Arel, lawyer and head of the budget department at Option consommateurs. For the student loan, we can establish a longer term plan with our lending institution, because the rates are lower than on credit cards. Financial planner Lison Chèvrefils believes that it is still better to get rid of our student debt on a short term – over 5 years rather than 10, for example – while we do not have too many commitments.
Practice paying before you buy.
“When they compare the cost of a monthly mortgage to that of their rent, many young people are attracted to buying a condo,” says Caroline Arel. But you have to analyze all the costs before taking the leap. A property is expensive in the first few years. You have to think about taxes (including the welcome tax), moving, notary fees, electricity costs. Young people are often advised to practice six months, a year or two years before buying. To do this, we evaluate the monthly budget necessary to buy the coveted condo, including all costs. And if we realize that it’s going to cost us $250 more per month than our current rent, we put that money aside as if we didn’t have it; you can put it in a savings account like a TFSA. After a certain delay, we assess whether we manage to live without this money.” If we didn’t make it and we had to use it to pay other expenses, it’s because we don’t have the means to support this rhythm of life. We must therefore review our project. If, on the contrary, we succeeded, we are ready to buy and, as a bonus, we have money aside that can be used for the down payment.
Start saving for retirement.
“When you’re single in Stéphanie’s situation, you don’t really benefit from a tax reduction, notes Lison Chèvrefils. It is therefore important to contribute to an RRSP to reduce our income and thus pay less tax. The ideal is to contribute enough to have a small tax return. On the website of financial institutions, there are tools that allow you to calculate the tax savings that you can make by investing such and such an amount in an RRSP, depending on your income and your tax rate. Even if at 20, 23 or 25, retirement seems a long way off, we shouldn’t wait to contribute to an RRSP: in fact, the earlier we start, the faster our investments will generate new income. According to the organization Question-Retraite, if you start saving $100 a month in an RRSP (offering an interest rate of 5%) at age 25, at age 60, you will have saved $110,846. If we save the same amount starting at age 35, we will have $58,573 in the bank, and if we start at age 45, we will only have $26,482. “The amount can be more or less important at the beginning, underlines Caroline Arel. The important thing is to get into the habit of saving. We can start with $50 a month and increase our monthly payment as our financial situation improves.” The important thing is to get into the habit of saving. We can start with $50 a month and increase our monthly payment as our financial situation improves.” The important thing is to get into the habit of saving. We can start with $50 a month and increase our monthly payment as our financial situation improves.”
