6 min read
Sometimes, late at night, I still get cold sweats thinking back to the time when I started my first “real” job. It’s not because I hated my work, had toxic coworkers or despised a horrible boss. It’s because I had zero clue how to manage my personal finances, and now I can only look back with one part shame and two parts regret.
A lot of people will say “money isn’t everything”, but those are also the people who have likely figured out a system that works for them. They’re not constantly feeling the stress of watching a paycheck disappear within days, or being blindsided by the shock of a massive credit card bill. If these feelings are familiar to you, you’re not alone. When I first started my big girl job at 22, I neither cared nor knew much about personal finances. I was just stoked to be getting what seemed like a TON of money coming through my bank account every two weeks! That initial excitement would soon turn to anxiety as I watched the dollars disappear, and after a year of working, having nothing in my bank accounts to show for it.
At this point, if you’re still reading on, you might be thinking “holy shit, this is so me. I’m screwed”. But there’s actually 3 pieces of good news: 1) Time is both forgiving and generous, and at this point you have lots of it, 2) small efforts can snowball into to big rewards, and 3) you’re clearly interested in bettering your situation, which is the first step. Hopefully this post can inspire you to start thinking seriously about your finances so you can spend more time worrying about where to brunch next.
Don’t @ me disclaimer 1: Keep in mind that these tips may not apply to everyone’s job situation, and some are Canadian-specific.
Don’t @ me disclaimer 2: I’m going to skip generic advice like “make a budget and stick to it” because there are tons of online resources on that already.
Build a banking system that works for you
The fundamental basis of good personal finances is figuring out the system that works for you. When I say “system”, I mean the cash inflow and outflow you have each month, and the bank account(s), retirement, and investment account(s) that you use to manage it all.
Personally, I have a main account where half my paycheck comes in, from which most of my bills are paid. The other half of each paycheck is split into 3 other accounts that are designated for different things: one for investments, one for my “luxe wishlist” (I must confess my slight obsession with designer goods), and one as my emergency fund for surprise events. I also contribute a certain % of my gross pay to an RRSP account as an automatic deduction from my pay, and my employer matches my contributions. Ditto with a pension account.
The biggest reason all of this works for me is because it’s mostly automated. I don’t have to stress about not remembering to pay bills, or save (it also saves you some banking fees if your bank charges for debit transactions)!
Build your credit
In the simplest terms, credit is your capacity to pay for things later than when you buy them, while your credit score is a quantitative measure of your trust-worthiness to hold credit.
Your credit score is SO important for every adult thing you may want in the future, like a car, house, or even a business loan to start that dream side hustle. You can ignore a lot of adulting things in life, but not this one!
One of the easiest ways to build credit early on is to actually get a credit card as soon as you’re legally able to (in Canada, it’s either 18 or 19 depending on the age of majority in your province) and use it! This may sound counter-intuitive, but lenders really care about the length of your credit history, and “evidence” that you can pay bills on time. The key, obviously, is to pay every single bill on time and in full so you don’t get into the habit of carrying a balance, and paying those insane 20%+ interest rates! If you can’t afford to pay in full, you can’t afford whatever you’re buying, so don’t.
Take advantage of employer benefit plans
For those of you who are employed, you should have a good understanding of what benefits (if any) you are entitled to. In fact, I hope that this was part of the criteria you used to assess which job to take (as part of the total compensation package – it’s not just about the base salary)!
Lots of employers offer plans for Retirement, Stock Purchase, and/or Pension. Some of them will even provide benefits where they match your contribution to these plans, up to a specified %. For example, if you contribute 5% to your RRSP, they will match by contributing an additional 5% on your behalf.
Not only is this “free money” that you shouldn’t be passing up, but it’s also likely something that other people are taking advantage of. I made the mistake of not contributing to a matched RRSP plan until more than A YEAR into my job, which was a mistake worth at least $10K. Lesson learned.
Do your expense reports
For a lot of jobs, you might incur expenses required for your job that your employer will later reimburse you for. While sometimes it might be for an insignificant amount of money, it all adds up over time! Your employer won’t thank you for saving them an extra $20 from gas you used to attend a work function. Find out what is expense-able by talking to your manager and set time in your calendar to do the reports!
Beware of taxable benefits
At the same time that your employer is giving you all these great benefits, you need to be aware that some of them might be taxable. This means that whatever monetary value the benefit equates to, will be counted towards your taxable income. Something as simple as a thank-you gift card might be taxable, meaning a $25 GC might end up only giving you a net benefit of $15. If you have the option to choose between different benefits (i.e. gift cards vs. actual merchandise), keep taxable benefits in mind so you aren’t surprised by how much you’re actually getting.
Prepare for *dun dun dun*…tax season
No matter your financial situation, as soon as you start to make money, you should think about filing taxes. I know this is probably the most dreaded and simultaneously boring AF thing I could talk about, but it’s important.
Taxes aren’t actually that complicated when you break it down, especially in your early career when your situation is likely more simple. Basically, everyone making over a certain threshold of income is legally required to pay taxes, and tax season is just a time where you calculate whether you’ve paid enough throughout the year, and have the chance adjust accordingly. The system is pretty fair, in that if you’ve overpaid (i.e. each paycheck you are deducted too much tax than what you should be paying based on your income level), you’ll get a tax return. If you haven’t paid enough, you’ll be issued a bill to pay more.
To make the whole process easier on yourself, be sure to keep an eye for tax documents that might get mailed to you, and don’t throw these away unless you’re sure you can get soft copies online. I literally put my tax documents in a blue ziploc bag so they are all in one place when I’m ready to file my taxes. In Canada, the typical deadline to file your taxes is April 30th, so companies will start sending you documents a few months before that so you have time to prepare the filing.
You might also hear people talk about “tax breaks”. Basically, tax breaks are items that allow you to say “I know I make $x, but $y of that was used to pay for this thing that the government supports, so it shouldn’t be counted towards my taxable income”. The government will essentially give you a break for paying for these things, like tuition, interest paid on student loans, charitable donations, etc. (full list here). Take advantage of these so you can pay as little income tax as possible.
Lastly, if you’re really not confident about filing your taxes, you have tons of options. Ask an accountant friend who you trust, ask your parents, sign-up for a tax clinic in your neighbourhood, or pay a nominal fee to get a company like H&R block to do it for you. If you opt for the paying route, think of it as a cheap education – use it for your first year so you can ask any questions you have, and have a real human being explain it to you in layman’s terms.