My First Full-time Job |
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I’m starting a new stage in my life. Diploma in hand, I’ve just landed my first full-time job. It’s exciting to think about everything I’ll be able to buy with my new income!
As my financial situation has just changed, I’ll be able to finally achieve my goals. And the following checklist will help.
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Checklist – To manage my new financial situation
Personal finances
Tax considerations
Protecting and maintaining my standard of living
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Personal finances
Planning
- I got quite a shock when I received my first paycheck! The net amount was below my expectations. I had forgotten about source deductions: taxes, public pension contributions, employment insurance premiums, etc.
- Before indulging in wild spending and adopting poor habits that will be difficult to correct later on, I need to set a monthly budget so that I know where my money is going. I have to factor in my student loan and the fact that I have to update my wardrobe, as I need to give my wardrobe a more professional look. With a clear budget, I will know how much I need to achieve my goals.
- I also need to make a list of my priorities and establish a timeline for achieving them:
- Live on my own now or continue living with roommates for another two years?
- Buy a car on credit right away or wait until I have more money?
- I evaluate the amount I need to save for something special. This will help me better allocate my income between the various areas of my budget.
- I need to set up an emergency fund. If I lose my job, these reserves will provide me with cash to pay everyday expenses until I find a new job. I would not want to have to give up my fantastic new apartment because I didn’t have enough money to pay the rent.
Credit
- Like all young people with newfound purchasing power, I’m solicited from all sides. I admit that the tagline, “Buy now and pay nothing for three years without interest” is very tempting. But it’s also dangerous, because I could easily get into debt. Who knows what could happen in these three years!
- I have to learn to master credit if I want to achieve my goals within the timelines I’ve set and not find myself deep in debt. I want to build a good financial reputation and be very disciplined.
- Because the interest rates on unpaid credit card balances can be as high as 18% per year, I use my credit card as a method of payment, not a method of financing, and I will pay my bills on time.
- I’ve also starting to repay my student loan. Because even if the interest rate is low and I have up to six months after I graduate to start making payments, the interest already started accumulating as soon as I completed full-time studies.
Savings
- To build a good credit rating and reach my savings goals, I’ve taken advantage of automatic withdrawals from my paycheck. It’s simple and efficient, and although it’s an additional deduction, it’s for me. I pay myself first.
- I’ve asked my financial institution how to save on user fees on financial services.
- I’ve barely begun the “working life,” as they say, and already, people are talking to me about retirement! It’s actually never too early to start thinking about it.
For example: If I start making RRSP contributions at age 35 or 40 rather than at 25, here are the contributions I’ll have to make to accumulate the same capital by age 60 (not to mention the tax savings from these RRSP contributions).
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Monthly RRSP contribution required to accumulate $250 000 at age 60, based on the age when contribution start. |
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7% rate of return |
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Age at witch contributions start |
Years of contribution |
Monthly contribution |
Total contributions made |
Accumulated compound interest |
Capital accumulated by age 60 |
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25 years |
35 years |
$138 |
$57,961 |
$192,039 |
$250,000 |
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Age 35 |
25 years |
$307 |
$92,047 |
$157,953 |
$250,000 |
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40 years |
20 years |
$477 |
$114,511 |
$135,488 |
$250,000 |
- I’ve decided to contribute to an RRSP. I admit that it’s less for my retirement, and more because I want to become a homeowner someday. The capital I’ve accumulated will help me buy more quickly thanks to the Home Buyers' Plan (HBP). To better manage my finances, I’ve included my RRSP contributions in my budget.
Tax considerations
- Another good reason to contribute to my RRSP is tax savings. Besides building an investment portfolio, I’m also reducing the taxes I have to pay in two ways: First of all, as my RRSP contributions reduce my taxable income, I’m paying less tax. And I’m accumulating compound interest that is tax sheltered. I’m killing two birds with one stone!
- By taking advantage of salary deductions to make RRSP contributions, I can ask my employer to immediately reduce the taxes that are withheld on my salary. By doing this, I can make my contributions without too much of a reduction in my net income.
- I’m claiming the tax credits for which I’m eligible. The provincial government (Quebec) offers me a non-refundable tax credit equivalent to 20% of the interest that I pay each year on my student loans. This percentage is 15 % federally.
Protecting and maintaining my standard of living
- Currently, the most precious asset I have is my ability to work and earn a living. If I could no longer work, either temporarily and permanently, because of an accident, illness or disability, how would I provide for my needs? I insure my salary with disability insurance. To choose the coverage I need, I consult the Insurance Shopping Guide.
- I've got my whole life ahead of me, but no one is immune to death. If I should die before I’ve fully repaid my student loan, my loved ones will have to repay my debt. I don’t want to leave them with this burden, and so, I’ve purchased term life insurance. Given my young age, it’s inexpensive, and if I die, the non-taxable insurance amount will be used to pay for final expenses. I’ll check with my parents to see if I’m already covered under their policy; if so, I may be able to convert this coverage to individual coverage!
- Obviously, I still wish to enjoy such important experiences as sharing my life with someone special, having children, etc. At that time, my coverage needs will be greater. That’s why I’ve purchased an insurability guarantee. This guarantee will allow me to increase my amount of insurance without having to provide proof that I’m in good health.
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You will probably earn between $2-3 million over your lifetime? So, don’t hesitate to consult a representative to talk about money matters! |
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