Your first ever summer job and an income. Finally. Part of the work experience will likely include on-the-job instruction and part of your summer experience should definitely include on-the-money instruction. Money management is an important life lesson everybody needs to learn and, with a regular payday for the first time, its the perfect window of opportunity to pass along some good information that will put you on the fast track to future financial success.
For students, it’s easy to burn through pay cheques from a summer job when the weather is good and the sales are even better. But for most students, money earned during the summer has to last well into the school year when earning potential drops dramatically. Luckily, there are ways to stretch each dollar.
Begin with budgeting
The first task is to create a budget. Try and get a feel for how much money is going to come in over the summer and everything that is going to go out through the year. Ensure to include gifts, bursaries, and scholarships. Incorporate everything on a budget worksheet. Google budget worksheets and you’ll find plenty on the Internet. Parents can assist you create a realistic budget with measurable and attainable goals. They can be your guide.
Manage money
Peer pressure and relentless youth-oriented advertising have escalated overspending into an expensive – and potentially lifelong – epidemic. Effective money management is the cure. You need to learn the value of always controlling expenses so they don’t exceed income.
Build an early nest egg
How you handle money as an adult will depend largely on the habits you learn growing up. Parents can be a good money role model and motivate you to be a regular saver and investor from day one. Something you can consider: Does your employer pay time-and-a-half on long weekends and statutory holidays? Offer to work them. If you are in school in the Fall and your school is nearby, offer to stay on in the Fall.
Savings automation
You should be encouraged to save at least 10% of your pay cheque. While adults are encouraged to save roughly 10% of their gross income, you need to set aside more. For the average person, you are going to probably want to save the vast majority of what you earned during the summer months because it’s so concentrated and has to carry through to the following year.
Consider topping up your savings every time you make a debit purchase. Most banks offer a program that rounds every purchase up to the nearest dollar and throws the excess change into the savings account of your choice. You’d be surprised how a couple of cents at every transaction can add up.
Cash generation
Instead of an RRSP, you should use other savings strategies. You typically have more pressing issues than retirement to deal with like paying off debt and saving for your first car or house.
Why not consider a Tax Free Savings Account (TFSA)? A TFSA is a great way to get an attractive return in today’s environment and keep all of it. You currently receive $5,500 of new contribution room in your TFSA each tax year and can contribute up to your personal TFSA contribution room amount. Your contribution isn’t tax deductible. Money and interest inside a TFSA is tax-free and so are withdrawals, which can be made at any time, for any purpose such as providing emergency cash for unexpected education costs.
Know your debt
Figure out how much debt you have and what interest rates you’re paying. In general, you are going to want to minimize debt as much as possible. But not all debt is created equal so it’s important to get some professional advice on how best to manage. A lot of student loans don’t kick in until after you’ve graduated so in some cases that’s good debt to carry until graduation.
Banking basics
As a student, you’re usually entitled to low-cost accounts with unlimited debit transactions at most banks. Get one of these while you can.
All you need is one good, low-fee credit card. If that card offers cash-back on a portion of your spending or rewards for things you actually use, that’s a bonus. Pick the best card for you. Use your credit card within your budget and make sure you pay it off each month. Credit cards are a great way to have some convenience, earn rewards, and build a good credit history.
Supplement your tuition
There’s a large number of scholarships and bursaries that are available. Not all of them are reserved for A+ students or those with low-income families. Look for them. Your post-secondary institution may offer options and resources to assist you in locating them. The Internet is also a useful research tool.
File taxes today
Your should file an income tax return to report the earnings from your first job. Your income may be below taxable levels right now but you will start accumulating RRSP contribution room that can be carried forward indefinitely. If your over the age of 19, you can apply for the federal sales tax credits on each year’s tax return. Based on net income, you will likely be eligible to receive quarterly GST/HST payments and an annual provincial sales tax credit.
Tax credits directly reduce the actual amount of your federal taxes and, in many cases, your provincial taxes, as well. You may also be eligible for these credits (last two if you are a post-secondary student):
* Canadian Employment Credit
* Working Income Tax Benefit
* Tuition, Education and Textbook credits
* Public Transit Pass Credit
Students may also eligible for a tax credit on interest paid for a loan that is part of a federal or provincial student loan program but has not been renegotiated with a financial institution or consolidated with other loans. Unused credits can be carried forward and applied in any of the next five years.
In summation
Your summer isn’t a vacation. It’s valuable time to make the money you need to help fund your education and get your own independence started. Learning is necessary and expensive. But you know that. You also hopefully know the lifelong importance of saving, investing and money management.
Most of you can follow your parent’s teachings to a comfortable financial future. However, sometimes you develop selective hearing loss especially when it comes to accepting advice from your parents. Other times your parents may not be the best role models. An external informed opinion may make the difference.
One option for that is by seeking the advice of a Financial Life Planner. Contact Northern River Financial at 1.855.5NRIVER or info@NorthernRiverFinancial.ca for that additional help. It’s part of Keeping Life Current.
