New graduates have an incredible opportunity to see investments grow if planning is in place!
Walton Financial Group in Barrie, Ontario has advice for new graduates about an approach to financial planning
First Things First:
Do you have any debt? If so, you should consider using some of your earnings to pay down your debt before other priorities. By doing this, you’ll achieve a guaranteed rate of return on your money (equal to your after-tax interest costs).
Other Considerations:
Determining the best way to save money should start with a discussion about what you’re saving for. Are you saving for a short-term goal such as buying a car, taking a vacation or starting a business in the next year? Or perhaps you’re following the prudent advice of many financial planners and want to create an emergency fund – typically three months of spending is a good goal. In these cases, a TFSA is a great option because you can make withdrawals tax-free when you need the funds and recontribute the amounts later.
On the other hand, if you’re saving for retirement – a much longer-term goal – then an RRSP should enter the discussion. RRSPs are designed for long-term savings. Since withdrawals are taxable, and you can’t recontribute withdrawn amounts (you will have permanently used up RRSP contribution room that you won’t get back again), you want to avoid withdrawals until retirement if possible.
Remember the Magic of Compound Interest:
Compound interest makes your money grow faster because interest is calculated on the accumulated interest over time as well as on your original principal. Compounding can create a snowball effect, as the original investments plus the income earned from those investments grow together.
As a rule of thumb, to see how long it takes for your savings to double you can use the “Rule of 72.” Simply divide 72 by the expected rate of return. For example, if your investments returned 6% annually, you would double your investment about every 12 years.
The more time, the more growth potential:
The higher your starting amount and the higher your investment return, the faster your savings compound. And over time, it can seriously add up. Saving early and often can put the power of compound growth in your favor by putting your money to work—so you don’t have to!
The bottom line is that newly minted graduates have important decisions to make when they start earning money and the earlier you start to treat your financial planning seriously, the better off you will be.
Contact the financial professionals at Walton Financial Group in Barrie, Ontario if you are a recent graduate about ways to start a financial plan that will achieve both short and long term goals.
