Hey readers, today’s Featured Friday comes from The Banker himself! Hope you enjoy!
Hello everyone! I love the idea of this blog and I could not be more proud of my girlfriend for starting it and putting herself out there “on the line”(that is a reference to the movie “The Internship…underrated in my books), and share her triumphs and stumbles on her way to becoming debt free. High five babe! As for me, I have been working at one of the Big 5 Canadian banks for about 2 years now and have been loving every minute of it. I studied Finance at university and am thrilled to be lucky enough to use my education in my day-to-day life.
When I was asked to write my first guest post for the blog I thought about it would be best to talk about some common mistakes that I see from younger clients on almost a daily basis. So without further ado here they are:
This could also be titled “no idea of how much they are spending”. When it comes to my younger clients, the thing I hear most often is that they have no money left over at the end of the month. I think one of the easiest and most effective ways to managing your finances is to know what you are spending and also what you are earning, you would not believe the number of people I see that do not even know the hourly wage they are earning.
Making a budget is quite easy when you consider that it is basic addition and subtraction. You take what you earn and add it up, you then take what you spend and add it up and subtract the two numbers. The hard part is figuring out what you spend. Start by listing your fixed expense (rent, loan/credit card payments, car expense, etc), these are expenses that are necessary. Then consider your variable expenses (coffee, cable/internet, clothes, etc). The key is to separate a “want”from the “needs”.
Once you have your budget, you are half way there; next you need to track your spending. You could create a spreadsheet in Excel and track it on your own, some banks offer programs to help you, i.e. RBC Financial Tracker, or you can employ one of many apps out in the market. I personally use an app called Mint, where you can input your budget and it helps you track your monthly spending, it will even email you when you over spend!
No saving plan
Another common thing that I see is that people do not have any kind of savings plan. Now I am an advocate of “paying yourself”but you also need to think ahead. There are so many things that can happen without any notice and when you do not plan ahead it have so many adverse effects on your financial wellbeing. Whether it is losing a job, a car taking a crap, or some other personal emergency, it is very important to have something put away for a rainy day.
This does not have to be sophisticated by any stretch of the imagination but you need to save something every month. Most banks offer a free savings account option and simple transferring $100 a month into one can be a start. Other options could be Tax-Free Savings Accounts (TFSA) or Registered Retirement Savings Plan (RRSP), but that’s a whole other post. Bottom line, I think that it is a necessity to end the month with something saved.
No (or very little) understanding of how credit works
Most young people come into my office and say something like “I need to build my credit,”but have no idea what that means. Credit is a very important part of your overall financial plan and it amazes me how many young people do not know how credit works. Whether it is not knowing how their student loans are structured or what affects your credit rating, younger clients tend to just be oblivious to how these debts can effect them down the road. Maxing out credit cards, missing payments, and even worse avoiding payments can cause problems that last years. My suggestion is always to be aware of your credit score and how certain actions affect your score. In Canada, Equifax (www.equifax.ca) and Trans Union (www.transunion.ca) are the two credit bureau companies in Canada and do have a free check option.
PS. Things like cable and cell phone bills do not show on your credit bureau but delinquencies and missed bill payments are seen by banks and do effect your ability to get approved for credit.
When was the last time you checked your credit score?