Financial Planning for After Post-secondary: A Graduates Guide

Graduating from a post-secondary institution is a significant milestone for any young adult. After all of the hard work, the intensive schooling is done. While continuing education never technically stops, one thing is for sure: new grads will need to start financial planning almost immediately.

Create a personal budget

Personal finance isn’t often taught in school, so new grads will need to learn how to do things from scratch. A personal budget is simple since all you do is list your income and expenses. While spending less than you make is always the goal, as you begin your career you may be just breaking even and living paycheque-to-paycheque. In an ideal world, your budget will work to include some room for savings.

To make a realistic budget, you’ll want to track all of your expenses for a few months. This will help you understand where your money is going. If you find you’re spending too much on certain areas, such as eating out, you can cut back and reallocate those funds to more important things. It’s worth noting that budgets often fluctuate, so you shouldn’t feel too bad if things don’t go according to plan each month. You just want to establish good money habits early.

Setting goals

Goal setting at a young age is essential and can be built into your budget. Some people may want to clear their student debt, while others may be focused on taking a solo trip for the first time. Regardless of your goals, adding them to your budget can be helpful because you’re setting them as a priority.

Having goals can also help you with your career. Some people will set certain milestones for themselves so they’re always working towards the next promotion, job or life event. Hopefully, with each career advancement, your income will increase. With these additional funds, you can reach your goals faster. That said, it’s important to note that not everything goes according to plan. There will be occasional setbacks, and although they can be disappointing, think of them as a learning experience not a negative.

Understanding credit

Many post-secondary graduates have been exposed to credit during their school years but may not have looked into the details of how credit affects them. Once you get any form of credit, such as a credit card or cell phone plan in your name, you start to build your credit score/history. Your credit score is a number between 300 and 900. The higher your score, the more creditworthy you are.

Having a good credit score is important because lenders use it as one criteria to decide how likely you are to repay a loan. In other words, you’ll want a good score if you need to borrow money in the future, for things like a mortgage or auto loan. A good credit score also typically means you’ll get access to lower interest rates, which could save you more money in the long term.

To increase your credit score, always pay your bills on time and in full, avoid using too much of your credit, and try to begin a credit history early. It really comes down to creating and maintaining good credit habits.

Building an emergency fund

So why do you need an emergency fund and why do you need one? As the name implies, an emergency fund is meant for emergencies like a job loss or your car breaking down. If you didn’t have any savings, and found yourself in a tough spot, you’d have to borrow money until you land back on your feet. Your emergency fund will ensure you don’t go into debt during difficult times.

Having an emergency fund of three to six months’ worth of expenses is one of the key rules of personal finance. Admittedly, saving that much money may seem impossible for new graduates, but remember that you only need to save enough money to live on. Most people can drastically cut back on their variable monthly expenses if they need to in a crisis, so the emergency fund should really be an amount that would provide you with enough to survive.

When building your emergency fund, start with a small amount, such as $25 a month. It may not sound like a lot, but it’ll add up over time. Once you have enough saved, you can divert any extra savings towards any debt or goals that you may have.

Saving and investing early

With a budget and goals in place, it’s time to make your money work for you. Saving and investing at a young age gives you a huge advantage. Your money will have more time to grow and benefit from compounding interest. That said, you’ll want to do some basic research before making any investment decisions.

Generally speaking, if you’re saving for the short term, such as paying for a wedding or buying a home, you’ll want to keep your money in safe investments such as guaranteed investment certificates (GICs) or a high-interest savings account (HISA). On the other hand, if you’re saving for retirement, products such as mutual funds or exchange-traded funds (ETFs) could be a good fit since you’ll have decades for that money to grow.

Final thoughts

Once new graduates get their first full-time job, they’ll be excited about the money they’ll be making. However, they’ll quickly realize that there are a lot of expenses in life, and financial planning requires a lot of thought. There will always be challenges ahead, but keeping up good habits early will help you navigate things.