By: Cameron Enns, Amity Trust Investment Advisor
As a young adult, it’s difficult to prioritize between tuition payments due next week, the first home you plan to buy at 25, and don’t forget about the year you plan to spend backpacking across Europe. Being a young adult often feels like you’re trying to accomplish a dozen different goals, with each of them changing by the hour. When attempting to find a balance between everyday purchases and long-term goals, individuals can feel constricted by their current financial situation. Adding on to the uncertainty of which goals to prioritize, the world of finances can be confusing, leaving people with a number of questions. What are the tax implications of my decisions? Should I hold money in an RRSP or TFSA? Which choice will bring me closest to my retirement goals?
From graduating with a university degree in 2021, to moving across the country shortly after, I understand the uncertainty of life and the kind of changes people go through in a short span of time. When creating a financial plan, we want to make sure to account for the unknowns that life provides, as well as maintaining realistic short-term and long-term financial goals. I want to provide for you 3 simple steps to assist you along your way and hopefully bring some peace to your financial situation.
Step 1: Take control of your financial situation
Whether it was that expensive Starbucks drink, or those flashy rims for your car, certain purchases can leave us questioning our decision, left with a sense of regret, unsure if it was a good idea altogether. That feeling of hesitation surrounds everyday purchases, and it may hinder our ability to enjoy the everyday things we wish to purchase. By becoming aware of our current cash flow, as well as our financial goals, we allow for the creation of a realistic personal financial plan. A plan that takes into account the enjoyment of everyday purchases, while maintaining focus on debt control and future savings.
Often times we feel like we are forced to choose between paying day-to-day expenses and contributing to long-term financial goals. With healthy budgeting, we can contribute to attaining both short-term and long-term financial goals. No matter the amount, creating strong saving habits as early as possible develops healthy patterns and allows for further financial benefits in the future.
So, what does this look like? Start with a simple budget, track your monthly expenses and see where your money is going. Categorize these expenses and total up each category. Next, take a look at any income you received for the month and determine a set amount of your income to put aside for savings. This will be allocated towards the goals you have prioritized for yourself. Finally, decide how much of your post-savings income you would like allocated to the different expense categories. Is there an area you are overspending on? In the following months, attempt to limit monthly spending to that portion of your income you settled on.
Step 2: Start saving for the future today
Whether you are able to set aside $50 a month or $500, the importance of developing investing habits as early as possible is significant. Below is a graph highlighting the difference in $200 monthly investments starting at age 20 compared to starting at age 30.
The graph above implies an annual return of 6%, with the contributions stopping at age 60. By starting these investment habits 10 years earlier, the final value of your contributions nearly doubles (starting at age 20: $400,289.64, starting at age 30: $201,907.52).
Step 3: Work with a professional!
With investment options ranging from TFSAs, to RRSPs, to RESPs, you may find yourself puzzled at where to begin. Here at Amity Trust, our team can help you create a plan that’s right for you. Whether it’s saving for the purchase of your first home or looking many years ahead towards retirement, we understand that no two situations are the same. We are ready to assist you in determining your short-term and long-term needs, by generating an investment strategy that best suits the needs of you and your family.