Thousands of soon-to-be graduates are preparing to enter the “real world” as exam season nears at many Universities and Colleges.
The end of a school year is always a stressful time; Finishing your academics strong, finding a job, all the graduation festivities, and emotions that go with it. Although finances often take a backseat, their importance cannot be emphasized enough.
Disorganized finances can lead to a lot of stress, never mind a time of transition from school to the working world. So, with graduation only a few weeks away, let’s look at how to make sure that your personal finances are in order for when you enter the “real world”.
Budget
This has been repeated in a lot of our recent blog posts. However, it’s importance cannot be overstated.
Before graduation, take a detailed look at your current financial situation. How much student loan do you have outstanding? What is your expected income after graduation? What are your expected monthly expenses?
This will give you a good idea if you need to cut back on some expenses. More importantly, it also tells you if you can afford to pay off the loans and how quickly you can be debt free.
Many recent graduates are caught off guard when they find out how much debt they have, what the minimum payments are, how long it will take to pay off, and if they can even afford the payments.
For this reason it is wise to choose your school and degree, with earning potential and student debt repayment ability, in mind.
Find a Job
This might sound self explanatory. The main reason people pursue education is to find a better paying job or more ideal lifestyle.
To adequately plan out your financial situation you need to know what your incoming cash flow will look like. This is a lot easier to do when you have secured a job in your field of specialization.
If you haven’t found a job, but know what field you’re most likely to work in, look at what the average starting salary is.
A quick visit to Google or your favorite search engine should provide a base expectation of what starting salaries are in your area. For more specialized individuals, services like payscale.com can give you a more accurate estimate.
When planning out your finances, make calculations based off of “worst case” scenarios for income. If the average starting salary for someone in your position is $40,000, calculate everything as if you were to make $35,000.
Doing this this will give you reassurance that if something does come up and you are forced to accept a lower paying position for a period of time, you can still survive and continue to make payments.
A lot of college graduates often find a place to live before finding a job. The prudent thing to do in most situations, is to first find a job. This can save a considerable amount of time and money spent commuting.
Student Loans
Now onto the topic that has a lot of the financial news spotlight; Student Loans. Student loans are often considered “good debt”, but such a broad generalization can be troublesome.
Student loans should only be considered good debt in some situations. One large factor to take into consideration when determining if student debt is “good” is future earning potential.
Regardless, how do you make sure that your student loans are in order?
Start by tracking the balances of all your loans (federal, provincial, bank, family, etc.). A spreadsheet is an excellent tool to utilize for this.
Once you know how much you owe, do some research as to the terms of each loan. Find out when interest starts accumulating, what the interest rate is, what the minimum payment amount is, and when payments start.
If you don’t have this information already, do some investigating. Start by looking at original loan contract, past statements, look on lender websites, or call the lender directly.
If you have Canadian Federal Student Loans there is a lot of helpful information and tools on their website. One of these tools is the “Loan Repayment Estimator“. Provincial student loans (i.e., Manitoba student aid) have similar information on their websites.
Terms will differ between loans, so make sure you know what they are. Don’t assume that all terms are the same, or that you already know what the terms are.
A lot of student loans also have “Repayment Assistance Plans” which you can apply for. If accepted, RAP’s are a great tool to lessen student loan payment burden.
We would not suggest using them unless necessary. Over the long term, you are likely to end up paying more cumulative interest.
When paying off loans, the best way to do it in most cases, is to focus on the paying off the loan with the highest interest rate.
Government of Canada loans are around 6% interest. This is probably the average for most student debt. However, if you have some loans with higher interest rates, pay those off first.
Federal and provincial student loans also have grace periods. Interest starts accumulating the month after graduation, but payments only start 6 months thereafter.
There is no “one-size fits all” fix for finances. Every situation is different. If you need help making sure your finances are in order, reach out to us and we will do our best to get you on track.
We have also created a detailed budgeting spreadsheet that we would love to share with you. To get your copy just fill out the contact form here, and let us know.
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Disclaimer: This Forbes Wealth Blog is for informational purposes only and does not constitute financial, legal, or tax advice of any kind. Please consult your legal, accounting, tax, investment, banking, and life insurance professionals to get precise advice relating to your particular situation before acting upon any strategy.
