By Peter Boys
“The Financial Coach”
Now more than 12 million strong and representing over a third of Canada’s population, Generation Y is the largest demographic cohort to come after all us baby boomers.
Born between 1981 and 2000, members of Generation Y, also known as Millennials, are already stirring things up in the workplace, according to their boomer bosses.
After just a few years in the labour market, Millennials have earned a reputation for being lazy, unprofessional, entitled “digital natives” who expect to start as interns on Monday and be chief executive officers by Friday.
A recent bank research project found that these young Canadians have embraced the importance of saving, but many don’t track their spending. More than half save at least 10 per cent of each paycheque. However, most either don’t have a budget or don’t follow the one they’ve created. That may explain why young customers are most likely to overspend on entertainment, snacks, fashion and those “must have” tech gadgets.
When budgeting, it’s essential to manage and understand your monthly cash flow when trying to gain control of where your money is going and ultimately reach your financial goals. It’s tough to start, but eventually becomes easier and habitual. With this in mind, here are three tips for Gen Y Canadians and their parents.
Create a budget template: Most people think that monthly budgeting means keeping complex spreadsheets, but this doesn’t have to be the case. It can be as simple as a sheet of paper with a two columns; one for money coming in and another for money going out.
The key is to include all income and expenses for the month, including discretionary spending.
The “money in” column should include any incoming funds like paycheques and government rebates. “Money out” should include everything from rent and living expenses to snacks and miscellaneous spending.
Track spending: Once you have a template in place, track all of your expenses. A great starting point is to use online transactions from your bank account and credit card, then add anything everything else. At the end of the month, simply categorized them into essential and non-essential expenses.
Review spending habits: Look over your records and check whether changes should be made.
While fixed expenses like rent and transportation likely can’t change, look closely at discretionary categories such as entertainment, eating out and shopping. Set a maximum monthly amount for each category. Put any extra cash towards paying down debt, especially credit card balances carried over month to month at 19 per cent or more interest. Then start building rainy day saving in a Tax Free Savings Account.
The easiest way to save is to set up automatic monthly debits from your bank account to a high interest savings account, a process called “paying yourself first.” Ideally, you should have enough cash to cover at least three months of expenses. After you have accomplished this, you can then begin contributing to an RRSP.
If you have a mortgage, check out innovative banking products that help you to manage your cash flow, and drastically reduce the amount of interest you have to pay over time.
Working with a trusted financial advisor can help kick start this process and get you on the way to building real wealth over your lifetime.
— Money Talk