While it’s possible to fix your finances later in life, it can be very difficult, and take a lot of work to accomplish this. A much better approach is to start out right. If you start, in your 20s, to keep your finances on track, you will end up in much better shape later on.
Here are 6 tips that can help you with a solid financial head start now:
1. Make a plan
When you’re in your 20s, it doesn’t often seem as though a plan is necessary. You might not even think to make a plan for your money or your future! However, if you want to direct your financial resources appropriately, you’ll want to make a plan. Setting financial goals helps ensure that the most important priorities you have are covered, and that you have a roadmap to future success.
Sit down, and think about what your money to accomplish on your behalf. Look at your career plans, investing plans, and long-term financial goals. Create a plan based on how you want to move from where you are now to where you want to be.
2. Avoid debt
While you may need student loans to help with your education, try to avoid debt as much as possible. When you do borrow, only take the absolute minimum and negotiate for the lowest possible interest rate. If you have debt, consider getting credit counselling and make a plan to pay off the debt as soon as you can. Nothing will erode your wealth like paying interest to someone else.
3. Contribute to tax-advantaged accounts
It’s never too early to begin thinking of saving up for retirement, as well as saving up for other goals. The Canadian government offers a number of great tax-advantaged accounts. You may be done with the RESP for your university education, but there are other options. You can contribute to a Registered Retirement Savings Plan (RRSP) and to a Tax Free Savings Account (TFSA).
These tax-advantaged accounts allow you to get more bang for your investing buck, and can help you secure your future. Contribute as much as you can, up to the maximum each year, to each of these accounts. That way, you will be on the right track to saving for a bright future.
Even after you have contributed what you can to tax-advantaged accounts, continue to invest. The power of compound interest works better the longer you have the money in the account. Investing in your 20s can mean hundreds of thousands of dollars more when you retire and gives you a huge jump relative to waiting to invest in your 30s. Continue Reading →