Many people who were fortunate enough to grow up and live under the financial shelter of their parents often did not think about their futures early on as they should have. It is such an advantage to have a solid grasp of basic financial concepts as early as possible so that one can be prepared to face the world with minimal shock. Here are 5 financial tips you must know while you're still young.
#1 Start as early as you can
When it comes to saving, earlier is always better. In Canada, young adults have the option to file a tax return and start creating contribution room so that once they have jobs, they can start contributing to their RRSPs. An RRSP is a great way to prepare for retirement and starting contributions that early can help you get ahead of the game. Make sure to plan out a budget that will help make it easier for you to set money aside.
#2 Understand credit cards
Credit cards can get you into a lot of trouble if you use them without understanding how they really work. They become especially dangerous when you start to rely on them too heavily—doing so can often send you down a hole of debt that can be difficult to get out of. If you own credit cards, make sure to watch your spending habits. Try your best to use debit for your transactions to avoid constantly borrowing from your cards.
#3 Life insurance is key
The benefit of buying life insurance while you're young and healthy is that you will enjoy low and affordable premiums. There are also several policies that have a grandfathering clause, meaning that if your health were to suddenly change, you would still be able to keep the insurance policies you took out when you were younger.
#4 Set your priorities
A car may seem like an easy investment, but it can get in the way of other financial goals you may have, such as buying a house.
Think about it—a monthly payment of over $500 is what you would also need to save in order to afford a down payment on a house. It will be too difficult to manage two big purchases at a time, so it's important to prioritize which big expense comes first, and which of them can wait.
#5 Avoid impulse spending
Impulse spending is one of the easiest ways to rack up credit card debt.
Once you have access to adult money, it can be tempting to spend it on things you want but didn't prepare yourself to buy. It may help to set some ground rules for yourself. For example: if something costs $200, wait two hours before buying it. Similarly, if something costs $400, wait 24 hours before buying it, and so forth. Anything that is genuinely worth having is worth waiting for.
