With post-secondary education comes independence, setting goals, managing your goals and making important financial choices. It is imperative that you educate yourself and make financial money management a priority to avoid future debt problems and avoid the possible long term effects of mismanagement, like inability to pay your obligations, collection agencies, credit counselling, or even consumer proposals or bankruptcy to resolve these issues.
Starting your journey with a good outlook and wise control of your income, spending and expenses will prepare you for the future and help you to not only have less stress while pursuing your educational goals, but you will also achieve financial success.
Although it can be an exciting time, entering this stage of your life can also be very overwhelming while trying to make the right financial decisions about your education, classes, funding, housing, transportation and employment. Our goal here is to give you some necessary information and also help you avoid the pitfalls of over spending resulting in possible debt problems.
In reviewing money management, click on the links below as we discuss the following:
- Savings & Investments
- Income Tax
- Credit; Student Loans; Credit Cards
- Lines of Credit; Personal Loans; Instalment Plans; Mortgages
- Bank Accounts; Bank Services; Bank Fees
- Savings Tips
- Housing; Moving; Service Connections
- Transportation; Vehicle Budget; New vs Used
- Making a Complaint; Keeping Records
- Direct pay & ATM
Budgeting establishes your income and expenses and is key to keeping you on track financially and out of debt by not spending more than you have coming in. Budgeting is vital to knowing where every bit of your money is going at all times and it allows you to meet your financial responsibilities and savings goals for future purchases like a vehicle, a home or even a trip.
Be realistic and don’t under estimate or you will fall short. Use discipline and be responsible about using credit if needed. The following is a list of steps that will help you to develop your budget successfully.
1. Your Situation – determine your needs, attitude towards money and your financial situation today
2. Set Goals
- short term, long term and prioritize
- be realistic about what you can afford
- be specific about the amount you wish to save and for what
- pick a time frame i.e. to pay off a loan
- what are your actions to achieve your goals i.e. $100 to savings account bi-weekly or monthly
3. Make the Budget
Making a budget is probably one of the most important tasks your will do that will give you the most rewards throughout your life. Taking control of financial management at this stage of your life will set you up for good debt management skills, financial freedom and rewards in the future.
Many adults who now experience severe financial problems resulting in collection calls, collection agencies, or even legal action or a consumer proposal or bankruptcy wish they had been informed of the importance of living by a budget. We would like to help you start out right by giving you the information and tools needed to make sound financial decisions that will ultimately affect your financial future.
First, refer to the Objectives Worksheet to identify, prioritize and create a plan to reach your objectives.
Second, use a Calendar Budget to post specific details to help you recognize when your income comes in, your bills are due and what you need each day for personal expenses like lunches. This ensures you will have enough funds weekly to meet your needs without resorting to credit cards and developing debt problems you may have difficulty paying back.
Third, you will prepare your Student Budget. This budget will take into account actual dollar amounts for income, expenses, irregular expenses and variable expenses. You will use this to compare your income and expenses and make adjustments needed to meet your financial needs. You will also take into account unexpected items like gifts, savings, moving, a new phone etc. that may come up.
Remember, when doing a budget worksheet you will need to convert your income and expenses into monthly amounts by multiplying them by 4.3 (weeks in a month for financial purposes) example: groceries @ $55 x 4.3 = $236/ month
4. For 1 Month
- Keep track of all receipts to give you a clear picture of your spending habits and needs using the Monthly Income & Expense Statement
- Use a cheque book to record purchases, amount and for what
- Keep record of all income, when you spend and bill due dates
- Verify credit card statements, pay stubs, funding and receipts
5. Compare budget with real spending
At the end of the month write in your ‘Actual’ spending and compare to the budget you made and this will give you a clean picture of your financial situation. Based on the difference, make the necessary adjustments for the following month. Please refer to Preparing a realistic Budget Activity
Re-evaluate your financial situation to make sure you are meeting your needs, values, savings and income over time. If you determine your budget does not balance and you are running a deficit, you can try to increase your income or reduce your spending or expenses. Fixed expenses like rent cannot be changed but variable expenses like recreation can.
Check with your school should you need some financial guidance or consult a Credit Counselling service who can also assist you with budgeting should you find you are having difficulties meeting your needs.
Fixed Expenses: expenses that change very little over time
Savings: make savings a budget item even if you only have a little, it all adds up!!
Net Income: is the income after taxes and deductions
Student Loan: an important source of revenue. Be aware these loans do have to be paid back after your education is complete but at a reduced interest rate than other loans.
Variable Expenses: vary from month to month and can be adjusted lower if you need money in other areas.
Irregular Expenses: occur only a few times a year
SAVINGS & INVESTMENTS
Saving through investments can set you up for a great financial future. An investment is where you put your money to make more money.
Before investing, determine if you will need to have access to your money sooner than later and how easy it will be to access funds for use. Long term investments usually earn a higher interest rate than short term investments. Do some research before committing as some investments are riskier than others.
Having savings is essential should you encounter an emergency, repairs, loss of employment or unexpected bills. You earn interest on savings and a plan to save will ensure you meet your financial goals. A few good tips to saving money are:
- put savings in a separate savings account
- put extra change aside and deposit it to your savings account
- deposit unexpected money, like gifts, into your savings account
- have your employer take a few extra dollars off your pay for taxes and then at Income Tax time you will get a refund for overpayment that you can deposit to your savings account
Remember to research simple interest and compound interest on your saving and also what options are available as to where to invest like term deposits, bonds, stocks, treasury bills or investment funds. Start early and see your efforts grow!
You are required by law to pay income tax through your employer or at the end of the year if you are self-employed. This tax is used to contribute to goods and services in your community like roads, parks, hospitals, and city recreation facilities to name a few. Your income tax is deducted from your paycheque based on what your income is assumed to be yearly.
When you prepare your required yearly Income Tax Return your T4 sent to you from your employer will indicate the total tax actually deducted for the whole year. Should the total deduction from your gross income be more than what should have been paid, you will get a refund from the government.
As a student, you have tax deductions that entitle you to decrease the amount you have to pay in tax like tuition fees, some monthly expenses, moving costs and transportation costs. Make sure you obtain the necessary documents from your school and include these documents with your Income Tax Return.
As mentioned earlier, having extra tax deducted on each pay is an easy way to save and then you can use this refund towards tuition fees, loans, credit card payments, line of credit payments, investments or purchases like a car or a trip. Keep in mind that your necessary needs should be considered before your desires to try to keep your debt to a minimum to avoid financial problems.
Credit can be a good thing if handled carefully. Poor management can result in substantial debt problems.
Having said that, there are several things to consider when you need to borrow money to meet your financial needs while attending school. When taking on a loan or using credit keep in mind this eventually has to be paid back so have a plan on how you will afford to do this so your debt can remain under control.
In order to borrow money you need to familiarize yourself with interest rates. Interest is the cost of borrowing money and the rate is the percentage of interest charged. Short term loans tend to have a lower interest rate than long term loans because short term loans present less of a risk to the lender that they will get their money back. Always shop around for the best rates offered by financial institutions.
When applying for a loan you will be asked about your credit rating. A credit rating is created and recorded at a credit reporting agency like Equifax or Trans Union. Your credit history is a record of your finances and your handling of payment to your creditors (lenders). Based on this information, you receive a credit rating that can negatively change over time should you not maintain a good payment history.
It is imperative that you make all payments on time and in full if possible as this rating can affect future applications for credit or loans and housing applications since your prospective landlord will make an inquiry and decide whether you are a good candidate or a risk.
You can apply for and obtain a student loan from the government OSAP or from financial institutions. The benefit of OSAP is that the government pays the interest on the loan while you remain a full time student. The interest and repayment of the loan starts once your education is completed.
The downfall is that at the end of your studies you have compiled substantial debt. This is where you might choose to use your savings you have accumulated as set out in your budget.
Check with your financial office at your school should you have questions with your application. You can also log on to the OSAP website for more information and the application process.
A credit card may be essential to help you meet or bridge expenses you may encounter while going to school. There are however, pros and cons to using credit so it is important you follow some guidelines in order to avoid falling into debt that you may struggle to get out of.
Using credit can:
- Allow you to make purchases and be billed later
- Allow you to earn points on some cards for items you would have to purchase anyways and then you can use the earned dollar reward points for purchases or free items (i.e. Shoppers Drug Mart Optimum points)
- If you pay your credit card balance in full by the due date no interest is incurred
- You can make purchases over the phone or the internet
Some of the dangers of relying on credit are:
- It can affect your credit rating if you do not pay by the due date which will affect future credit, approval for housing or a loan
- Credit cards are more expensive than a line of credit or a personal loan with interest rates reaching as high as 29% in some cases
- You may be tempted to spend more
- You might acquire more debt than you can handle which, if not kept under control, can lead to major financial problems in the future
Remember to shop around for the credit card that best suits your needs and consider the following:
- special student rate cards
- credit limit
- annual fees
- interest rates
- payment periods
- reward programs
- balance protection insurance
- credit card fraud
PERSONAL LINE OF CREDIT
A personal line of credit is a loan from a financial institution in which there is a credit limit, however, you can access the money as needed and pay a much lower interest rate on only the amount you use until you pay it back.
Do not get yourself into the habit of considering this to be extra money to spend freely or you may find yourself in more debt than you realize. Again, shop around as rates offered may be different at different financial institutions.
A personal loan is given for a specific amount of money to purchase items like furniture or a vehicle and the interest rate and terms of the loan are set and fixed at the beginning of the contract.
You are responsible for a specific amount each month that you will have to work into your budget until it is paid back in full. This amount will include a portion of what you borrowed (principal) and interest calculated as per the loan agreement. Looking for the best interest rates offered will help you to save money.
Having a fixed loan may allow you to budget better monthly but remember the reality of being able to pay it back on time so you don’t hurt the great credit rating you are trying to establish for yourself.
We all want and sometimes need items like a television or appliances. You can purchase these items at many retailers that offer instalment plans for payments. The benefit is that you can have the item immediately but pay monthly.
The seller however, owns the item until the final payment is made in full so be aware that if you fail to make payments as per the contract signed, the retailer can repossess the item. You should also be aware that the price has been increased by the seller to take into account interest charges.
“Buy now, pay later” deals sound wonderful but remember the total amount is due in, for example, one year, but interest may be charged from the date of purchase so be clear about the terms of the contract and pay it back on time to avoid further charges, fees and increased debt.
A mortgage is a long term loan, with interest, used to purchase a home and that home is then used as security against the loan if you cannot or do not make payments against the loan. This means the bank can take back the house and sell it if you default on the payments.
There are different types of mortgage loans such as open, closed, fixed or variable interest rates. There are also several options to consider like the term, payment schedule and amortization. Speaking to a bank manager can enlighten you on these terms and then shop around for the best offers available.
It is important to be realistic about how much you can afford to apply to a mortgage while taking into account all of your financial obligations. Just because a financial institution says you qualify for a mortgage amount based on their calculation they do not know your life and spending habits outside of your utilities, credit and loans.
So if you enjoy recreational activities, like to entertain or even take trips, remember to allow for these expenses in your calculation so you do not exceed your spending limits. Also keep in mind whether you will be able to continue to make your payments should there be a change in household income. The more you can save to put as a down payment on a home the less you have to borrow and the less interest you will have to pay to someone else.
Owning a home is very exciting but living within your means and being able to enjoy life without the worry of spending all of your hard earned money on your home without the flexibility and freedom to spend a little on other things you want or need, can be very stressful. In turn, stretching yourself too thin financially can affect relationships and lead to debt problems if not handled carefully.
BANK ACCOUNTS, SERVICES AND FEES
There are several financial institutions wanting your business but it is important to understand the types of accounts, services and fees available before opening any account. After all, this is your money, your savings and your finances so understanding and looking for the best options to suit your needs is key and will also save you money.
Using the right bank account has many benefits like:
- special rates for student accounts
- save and earn interest
- pay bills, write cheques and use of the ATM
- statements to keep records of all of you income, monthly expenses and purchases to balance your budget
- you establish a history with a bank which helps when applying for a credit card or loan
There are 3 types of bank accounts offered: savings, chequing or mixed depending on the financial institution you choose.
- Savings Account: pays interest, withdrawals, service charges may be higher for transactions, limited transactions but a good choice if you intend to save and have little activity
- Chequing Account: more transactions allowed, in branch banking or ATM use, cheques, lower service charges, interest earned is lower, great for day to day management of your money like paying bills or making purchases
- Mixed Account: is a combination of both savings and chequing account privileges
Banks offer many services and options to take care of your day to day finances like:
- Internet: online access to handle account transfers, check balances, pay bills, keeps a record of all of your monthly transactions
- Telephone banking: automated or speak directly to an agent to handle account transactions, details about transactions, bill payments and balances
- Interac: make in store purchases
- ATM: withdrawals, deposits, balances, bill payments and transfers
- Certified cheques, money orders, travellers cheques
- Credit cards, loans, lines of credit and mortgages
Bank fees are charged for services based on how often you use them for transactions like cheques, withdrawals, ATM use. Many offer plans to choose from to suit your individual needs.
Note that independently owned ATM machines will charge an extra fee as well as your financial institution. These fees can add up to $3 or $4 dollars per transaction so it is best to use an ATM owned by your own bank and make sure transactions are covered in your monthly fee so you don’t pay an additional charge. Electronic services generally cost less that using in-branch services.
Some bank accounts require you to maintain a certain minimum balance at all times in your account to avoid fees. Try to minimize the number of withdrawals made and withdraw what you need for the week to avoid further fees if you go over your transaction limit.
To save money you can also make a cash withdrawal during a purchase transaction at a retailer as you are not charged for a separate transaction.
Make saving a priority! It is highly recommended your budget allows for savings, no matter how little as it will add up over time. Other things you can do to save money to put you in a better financial situation are:
- Avoid interest charges – by paying debts and utilities before the due date. Remember to allow for 5 business days for your payment to be received by the creditor
- Student rates – always ask if there are student rates or use an SPC card for discounts
- Coupons & deals – look for coupons online as there are many coupon websites that you can print coupons and use for groceries; look in flyers and magazines for deals on movies and restaurants
- Books – return books to the library on time to avoid late fees; buy second hand; re-sell those you no longer need
- Buy & Sell – there are many great websites like ‘buy & sell’ sites on Facebook where people in your own community are looking to sell new and used items from clothing to furniture and electronics etc. at great prices
- Bus Pass – buy a monthly bus pass as it is cheaper than paying day by day
- Groceries – shop flyers first, make a list and don’t impulse buy and remember your coupons; no name products are cheaper
- Cook – make meals ahead of time to avoid temptation to buy on the go; make a lunch; invest in a slow cooker and your meals will be ready when you get home
- Insurance – shop around for the best quote; if you have a car and a home with the same company you may get better rates
Being financially independent is about being able to support yourself and gain independence, maturity and a sense of pride. Some may still need to rely partially on parents for financial assistance during their post-secondary education as costs can be high and time for employment may be limited.
Try to make your education your priority and focus, not employment if you can, as it will ultimately determine your future of realizing your financial goals. If you find yourself needing to work to meet your expenses, try to work around your school scheduling requirements, not the other way around.
Although continuing at your high school job may seem convenient, you may want to find a job more reflective of your interests in post-secondary education, one that pays more with respect to your present qualifications and one that provides more experience in different fields as employers look for this on resumes. Your school also hires students as well, so check with your financial aid office.
Co-ops and internships usually offer higher pay rates, have paid work terms, provide more experience and diversity that employers are looking for and you will be able to establish important contacts for future reference. Check with your school administration if interest or need questions answered.
Once home for the summer try to find summer employment in your field of interest or in public service for the Government of Canada ( www.jobs.gc.ca ) as it offers better wages, regular hours, and you will gain valuable experience, professional contacts and possibly a future permanent position. Other places to look are the private sector or employment placement agencies who provide names to businesses looking to hire.
Once accepted into post-secondary education, you must then decide if you will continue to live at home, stay in their dorm or rent off campus. It can all be very stressful so we will discuss pros and cons of each scenario to help you decide which option is the best financial decision to make for yourself.
Living at home can be the most economical but many want to venture out to gain further independence, have the full post-secondary experience or to relocate if attending out of town. Leaving home can be an exciting time but keeping your finances in order can be challenging. Establishing a budget and your capabilities to meet your budget is crucial to financial independence. Determining how much everything will cost is key.
When considering whether to stay home, rent with friends or stay at a conveniently located dorm with amenities, consider the following expenses and your priorities:
- rent costs
- initial hook-up charges for utilities
- social activities
- service fees
- recreational memberships
- meal plans
Dorm life has many advantages:
- closer to school for safety
- possible walk home service
- easier attendance for social and organized activities
- cleaning service
- no lease to sign (rental houses require a 12 month lease)
- all fees paid to school in 1 monthly payment (rent, bills, services)
- problems with the unit is the school’s responsibility not yours
The pros of Off Campus living are:
- more independence
- responsible for managing all of your bills, rent etc.
- maintain your own space
- usually larger living area
- decorate and personalize your own place
- share costs with roommates
- must sign a lease – a legally binding agreement between you and the landlord for a 12 month period at a set cost, that sets out your obligations with payment due the first of each month. Be sure to read agreement fully before signing as it is binding, keep a copy, inspect the unit and be sure to record any problems on the inspection report so as not to be held responsible at a later time.
When renting you should ask questions before entering into an agreement so you are clear about your obligations toward the lease. Also refer to the landlord and tenant act to know your legal rights should you run into problems with the landlord. Here are some questions and requests you can make:
- Pets allowed?
- Request locks to be changed
- Take someone with you that you trust
- Check things to make sure unit is in working order like run the water, flush the toilet, check the locks work and open windows
- How long is the lease?
- What are the monthly utility costs (heat, hydro, water)?
- Is cable and internet included?
- Can you adjust the heat or is it set?
- Are appliances included?
- Laundry facilities on premises and is there an extra cost?
- Who is responsible for yard care and taking out the garbage?
- Is it a safe community? Ask about noise level as well
- Who lives in the building?
- Any noise restrictions?
Consider having friends or family move you as it is much more economical. If you need to rent a truck, the rates are lower on weekdays but higher on the first of each month. Note, you must be at least 25 to rent or drive a rental vehicle.
If moving yourself is not possible you will need to shop around for prices, student rates, available dates, book early and find a reputable company who is insured and equipped to meet your needs. Make sure you get a quote in writing and ask if there are any hidden costs.
Make sure you order your service hookups for electricity, heat, telephone, internet, and cable, as soon as you know your new address to ensure it is all working the day you move in. You will also be required to pay a deposit to the utility companies, usually $100. Read any contracts for service carefully as there is usually a penalty for cancelling early. Pay all of your utility and service bills on time or your services could be cut off and your developing credit history could be affected.
To save money on service cost you can:
- Wash dishes instead of using a dishwasher
- Do laundry and shower during off peak times, usually 7pm to 5 am but check with your city
- Lower your thermostat when not home and turn off air conditioning if not needed
- Set limits for hot water usage like long showers
Transportation for post-secondary students can be costly if not covered completely by your school or OSAP funding. Car pooling or public transit is a great option to keep costs down.
Buying or leasing a vehicle is a major expense and there are factors to consider. Before doing so, you will need to prepare your Vehicle Budget, do your research on payment options, determine if you can afford to purchase a new vehicle, used vehicle or lease one and decide if you really want to risk getting into debt. This may mean missing out on student life or activities for a vehicle.
Options for payment on a vehicle are:
- Financing – if buying or leasing you must determine what you can afford and don’t be swayed by a sales person trying to make a sale
- Savings, gifts, parents.
- Credit or car loan – you may need a co-signor who is also responsible for the debt should you not be able to pay. Dealership loans are usually at a lower interest rate than banks.
- Line of Credit – a set amount of money at a lower interest rate that you have access to. You pay interest only on the part you used; it generally has a lower interest rate than credit cards.
Additional costs of owning a vehicle are as follows:
- Insurance – usually higher if under age 25; shop around for the best premiums
- License – there is an annual fee for license and sticker renewal
- Maintenance /Repairs – oil changes, tire rotation, fluids, mufflers, emissions testing, brakes etc.
- Gas – major unavoidable expense
- Parking – can be costly if you do not have a parking space in your rent agreement
- Unexpected costs – deductibles can be very high so keep room in your budget for these costs like tire replacement, accident or ticket
NEW VS USED
First off, know your budget and stick to it! Avoid spending more than you need to. Sales people will always try to sell you bigger and better since that is how they earn their living. Be practical about what you need based on cost of owning, running the vehicle and your driving/distance needs.
New cars depreciate up to 30% of its value in the first year so shop wisely. They also cost a great deal more over a longer time with interest, have high repair costs and insurance is higher as well. Having said that, a new car is reliable, comes with a guarantee, once paid in full you own it and you have equity.
Used vehicles are often a student’s best option because of its affordability, insurance is lower and there is no depreciation. These vehicles are more trustworthy than they used to be due to the emission testing regulations every two years; some still have a manufacturers warrantee; you have access to the vehicles history and there are usually lower finance rates.
If buying used remember to do a road test, verify the seller is the true owner and have it inspected by a mechanic. Most of all, don’t be pressured into a decision and negotiate the best deal…there is usually room to drop the price.
THINGS YOU SHOULD KNOW
MAKING A PURCHASE COMPLAINT
If you are dissatisfied with a purchase you are entitled to take steps to make an appropriate complaint to try to resolve your concerns. Your money is valuable and to not resolve your financial issues is costly. Remember to stay calm, be polite, check the return policy, and describe the problem and how you want it resolved.
Always get the person’s name, write down details for reference and date everything. Remember to keep all records like sales receipts, repairs, contracts, warrantees, contacts and correspondence. Don’t wait too long to make a formal complaint as there are time restrictions. The following steps will help guide you through the process.
Make contact in the following order and move down the list if you do not get results you feel are fair:
- Complaints department
- Write a Complaint Letter to the owner and remember to provide all details, steps you took to try to resolve it and tell them what you want to be done to resolve it to your satisfaction
- Contact headquarters – if no results contact the customer service dept.
- Government offices and consumer organizations – contact Consumer Affairs
- Legal action – this is your last resort and legal advice is a necessity
Debit and credit card fraud is rampant in Canada. It can happen to anyone. Not only can your card be used if left behind, your card information can also be used if swiped at your local retailer if they are less than professional. On-line purchases is another way for someone to access your credit information.
It is imperative that you be mindful and as safe as possible. Follow these tips and familiarize yourself with the types of fraud out there.
Types of Fraud
- false advertising
- mail fraud
- counterfeit money
- marketing and pyramid schemes
- email scams
- online computer cleaning & maintenance services stating there are problems with your computer
- fraudulent weight loss programs
- work from home scams
- magazine subscriptions
- offers that seem too good to be true
- always read the fine print and check the dollar totals
- ignore tactics by email, pop-ups or telephone stating:
- you have been specially selected …
- you are a finalist …
- verify your banking or credit information
- send $ for your supplies
- you have won …
- make thousands of dollars in your spare time
- here is your special claim number
- we will be in your area servicing your neighbors
- door to door sales deals
- companies like hydro asking to check your rates to get you to sign
- send money through electronic channels
- fraudulent rent ads getting you to send money to hold housing
- automatic withdrawals from your bank account
- offer a free prize but charge shipping and handling
- requesting any personal information, for example, SIN. Only government agencies need this info for tax returns.
Keeping your identity and your transactions secure is necessary at all times. Protect your credit cards and debit cards and be safe when using direct payment and ATM. The following is a list of a few important tips to ensure your financial security.
- Protect your pin number on your cards, do not use your name, number or birth date as your pin, memorize it and do not lend your cards.
- Never reveal your pin to anyone ever! Even your financial institution or any other authority will never ask for it so if someone does refuse
- Never leave your cards unattended at work or social functions, in the car and always keep them with you or in a safe place
- Make sure you get your own card back when making purchases
- Keep a record of all of your cards and their numbers and if stolen, report immediately
- Sign your cards, cut up old or unused cards
- Although time consuming, always verify your transaction on your monthly card statements and report anything not purchased by you
- Never give your card number over the phone unless you are dealing with a reliable company
- Only use ATM when you feel safe – wait or go to another if you are unsure, remember to take your receipt and card with you, count your money and pocket your money immediately. Report any bank errors
- Safety is most important so if there is a theft inform the police and your financial institution