How to Adult: Adulting Your Finances 101

Canada's Credit Unions - Adult Your Finances

How to Adult: Adulting Your Finances 101

Canada's Credit Unions - Adult Your Finances

Not sure how to adult your finances? Here are some considerations. Graduating from university or college, securing your first job, and renting your own apartment that you can call home is an exciting milestone in the lives of many young Canadians. However, while adulting brings the joys of independence and the opportunity to pursue the career of your dreams, it’s not always a picnic. From the responsibility of paying your monthly rent and utility bills to juggling 40+ hour work weeks to cover your living expenses – being a fiscally responsible adult is no easy feat. But fear not, it’s never too soon to start getting your financial house in order! Whether you make $40,000 or $80,000 a year, clearly understanding how to manage your money can help set you on a path toward a brighter financial future. If you haven’t started thinking about effective strategies to manage your finances for this new chapter in your life, now is the perfect time to take action.

Here are a few tips to level up your financial game into adulthood and beyond:

1. Setting Financial Goals

One of the hallmarks of adulthood is being comfortable with delayed satisfaction – that’s where setting financial goals comes in. Start by writing down the short and long-term financial goals of importance to you in a notebook and defining your timeline for accomplishing each goal. By setting attainable financial goals and writing them down, you will have a clear vision of how you want to spend your money, which can help you make smarter spending and saving choices. Plus, by setting up a mix of short and long-term financial goals, you can save money for purchases you can enjoy soon while also playing the financial long game which will help you stay motivated in your budgeting journey. If you have a long-term goal of buying your first home, setting aside as little as $150 weekly for ten years could help you save towards that down payment. Similarly, if you are hoping to take a trip to Mexico this winter, adopting the same financial due diligence with your savings can help ensure you succeed in having some fun in the sun this year! Ultimately, by making small and recurring contributions to your savings, you will develop healthy financial habits, and the weekly deposits will be more manageable on your pocketbook than putting down thousands of dollars all at once.

2. Every day, I’m hustlin’

If you are looking for additional sources of income to supplement your current lifestyle or to help you keep up with inflation, turn your free time into cold hard cash with the help of a side hustle. A side hustle is a great way to capitalize on the hobbies/activities you enjoy or excel at while bringing in some extra cash at the same time. Now that’s a win-win! Taking the time to assess your unique skills and talents and the options available can help you find ways to bring in some extra money. Do you like kids? If the answer is yes, consider acting as a babysitter for the kids in your neighbourhood. That’s a wonderful way to give parents some much-deserved time to themselves and put a few more dollars in your pocket too.

3. Set up a Rainy-Day Fund

As the age-old saying goes, expect the unexpected. Now, while you may not be able to predict the future, it’s essential to be financially prepared for emergencies before they happen. Whether you make $25,000 or $100,000 a year, earmarking money as a financial cushion for life’s unexpected moments can help you preserve your long-term financial well-being. That’s where a rainy-day fund comes into play. Start by setting aside a small amount of money from your pay cheque each month to put towards any emergencies that could be financially taxing. Justin Mury at Brunswick Credit Union shares his perspective on the benefits of developing a rainy-day fund at an early age and how it can alleviate the financial stress of unforeseen expenses.

“Starting to save for a rainy day in your 20s and 30s can help reduce your financial stress when you get older. I mean, it doesn’t fix everything, but when your home needs repairs – and it will need repairs – you’ll be glad you were looking out for the rain”.

A good rule of thumb for your rainy-day fund is to earmark 3-6 months’ worth of living expenses to help you navigate life’s unexpected moments. By being financially prepared for any emergency – such as medical emergencies, household repairs, or job loss – you can handle the unforeseen expense more confidently and avoid incurring additional debt. So, whether your car suddenly breaks down or your home needs repair, start building your rainy-day fund today to be prepared for whatever life throws your way tomorrow. Justin suggests automating your contributions to your rainy-day fund to help build up your savings and better prepare yourself for the next financial expense that comes your way:

“I would suggest, though it seems simple, for you to set up an automatic transfer from your chequing account to a savings account on the same day you get paid. This will help you budget and save. I’ve even found that having your emergency savings in a separate account that you don’t see on your mobile app and isn’t attached to your debit card helps reduce the temptation to just spend it. You won’t have impulse-buy regrets if you can’t easily access your emergency savings – so bye-bye shiny new shoes you didn’t really need and hello-hello-hello money for when your hot water tank calls it quits.”

4. Get Comfortable Living Within Your Means

So, you’ve snagged your first salaried job and are making reasonable money for the first time? Congrats! But with more money coming into your chequing account than you are used to, it can be hard to resist those pricey purchases you’ve long had your eye on. But it’s important to remember – just because you can afford it, doesn’t mean you should buy it! Take some time to get a holistic picture of your financial situation by writing down a list of your current financial savings and expenses over the month. By clearly outlining how much money comes in and out of your account each month, you can find areas to cut back on and maximize your savings. Cutting back on indulgences and sticking to a budget may take a bit of effort, but by being diligent with your spending, you’ll be able to put these extra dollars to better use and reach your next financial goal that much faster. Don’t worry, you can still treat yourself to your go-to coffee order from your favourite café – just change your frequency from daily to once a week or even monthly.

5. Build Your Credit Score with a Credit Card

Building your credit score can take years – but it’s a critical financial indicator that you must take care of as it can impact your ability to reach your financial goals. A credit score is a three-digit number representing your credit risk and influences your eligibility for items such as a loan or credit card, as well as how much interest you’ll pay on these financial products. This score measures trust: the greater your score, the more trust lenders will have in your ability to repay a loan. Credit cards are an excellent tool for young Canadians to establish and build their credit score. Having a credit card can feel scary, but don’t be afraid to use it! Remember to spend ideally no more than 30% of your credit card limit and pay your bill in full each month. Refraining from overspending will help keep your credit score high throughout your lifetime. It’s also important to remember that every payment counts! Even one late payment on your credit card bill or missing the payment altogether can harm your credit score. As the saying goes, with great power comes great responsibility, and being conscious of your credit card spending can help protect your credit score so you can reach all your financial objectives. For example, if you hope to buy your own home one day, having a good credit score can help you secure a favourable mortgage rate. Alternatively, having a low credit score may subject you to a high-interest-rate mortgage or hinder your chances of getting approved for a mortgage altogether. So, before making any large purchase that’s beyond your financial means – think twice. Does your credit score need some T.L.C.? Don’t fret. Consult with a financial advisor at your local credit union to help you build a financial roadmap to get your credit score back on track.

6. Start Investing

While boosting your savings is important, having all your money sitting in a savings account is not the best way to grow your wealth – that’s where investing comes in. Investing is the simple act of committing money with the expectation of receiving a financial return. From stocks and bonds to mutual funds, you can choose from a range of investments to help you achieve your financial goals. Start by taking some time to research and learn the various investment options available and their risk to help you determine the best investment mix to meet your short- and long-term financial needs and match your risk tolerance. Once you’ve beefed up your investment knowledge, it’s time to select your investments and diversify your portfolio! By expanding your investment portfolio and putting your money across a wide range of investments, you can better protect your financial future. That’s because if one investment fails due to a company’s profit loss or a volatile economy, your other investments in the portfolio may generate positive returns, which will help ensure you will always have some money coming in. Before taking the plunge into investing with your hard-earned cash, consult a financial advisor to ensure you choose the most suitable investments for your financial needs.

7. Start Saving for Retirement

If you’re a young professional in the workforce, you might think retirement is far away, but it’s never too early to start planning for your retirement years. By opening an RRSP account and making regular contributions at an early age, you’ll not only have more money when it comes time to retire, but the longer these contributions are held in your account – the more these funds will benefit from compound interest. Did you recently receive a raise or bonus at work? Congrats! Rather than spending these additional funds on a frivolous luxury item you’ll enjoy for a short time, invest in your future by putting this extra money towards increasing your monthly RRSP contribution – you will thank yourself later. But the opportunities to fund your retirement don’t stop there! Many corporations also offer RRSP matching plans as a part of their employee benefits that you can take advantage of. By using any RRSP matching your employer provides you can grow your retirement savings faster and max out on your annual contribution limit. Simply put, with regular RRSP contributions from both you and your employer, you’ll have more cash in your account to use when you need it most.

Prepare Your Finances for the Adult World with the Help of a Credit Union
Adulting can be tough sometimes, but it doesn’t have to be. Credit unions are a great option for all of your banking needs. They care about your financial well-being and can help enhance your financial knowledge and provide you with guidance to better manage your finances for now and in the years ahead. Not yet a credit union member? Find your nearest credit union here.