This post is sponsored by Alterna Bank, but all opinions and stories are my own.
When I was a student, I was not reading personal finance blogs—let’s just make that clear right now.
I wasn’t terrible with money as a student in the grand scheme of things, but I definitely could have been better. But you know what? I think that’s perfectly OK.
I get emails fairly often from readers who are still in school, and typically, they reach out to ask what they should be doing, and if they’re already behind.
My first point is always something along the lines of “Oh my gosh no you are so far ahead if you are thinking about this stuff already!”
But I’ve also been known to get into specifics about how I would personally approach money, knowing what I know now, as a student—and specifically, how I would handle money in the lead-up to graduation.
So if you’re about to graduate, here’s exactly what I would do in your shoes. It’s not advice necessarily, because your situation might have a ton of different variables involved, but it is what I would do if I were having a bit of a freak-out about money in the lead-up to graduation.
1. Make it to graduation
Again, can we just get a small round of applause that you’re even reading about money at all before you’re out of school? In my opinion, your most important priority right now is to focus on what you need to do to make it to the finish line: graduation and job hunting.
You don’t need to be worried about investing or any advanced personal finance just yet. Use your mental energy to attend networking events, get your coursework done, and get through your last round of exams instead. That’s by far the most impactful work you can do right now.
2. Set a post-graduation budget
As soon as you have an idea of what you’re going to be earning once school is done, either from a full-time job you’ve landed or scaled up hours at your current gig, put together a rough budget before you make any major decisions about things like rent or transportation (which will likely be your two biggest expenses right off the bat).
This situation is exactly why I set up the One-Minute Budget, because when I signed on for my first post-graduation apartment, it was by sheer dumb luck that I found one that fit within what I “should” have been spending on rent. All you have to do is put in your total take-home pay per paycheque (estimates are better than nothing!) and it’ll tell you roughly how much you should aim to spend on things like housing and transportation.
Those numbers can be adjusted, especially if you’re in an expensive city, but it’s a good starting point for making decisions. Like if you can “only” spend $150 on transportation, that probably rules out buying a new car once you add up insurance, gas, parking, and a car payment.
The one thing you should make sure not to forget? Taxes. If you’ll be making $40,000 a year in salary, use a tax calculator like this one to figure out what you’ll take home once taxes are paid—it’ll have a big impact on your budget.
3. Track your spending
Once you graduate and you start putting your budget estimates into action, it’s the best time ever to track your spending. Your routine has just massively changed, since you’re not in school anymore, and if you’re now working full-time you might be earning more than you ever have.
It’s all too easy to let those two things combine into spending more than you’d like, or getting into spendy habits that you aren’t intentionally choosing based on your values. No one is out here telling you not to buy a latte to help ease into the 9-to-5 routine, but just make sure it’s your priority, you know?
4. Start saving
At this point in your life—you’ve just graduated and you’re into your first job—the most important thing is that you save, not that you save a ton. Saving money every month is a habit, and it’s much easier to add a bit more to an existing saving routine than it is to start one from scratch.
As soon as you’ve set up your budget, allocate a small amount to a high-interest savings account, like a High Interest eSavings account with Alterna Bank. It pays 2.35%* interest, which is one of the highest rates you’ll find anywhere, so even your small savings will be working hard for you from day one.
Plus, if Alterna isn’t your day-to-day bank, this has the added benefit of keeping your savings out of sight, out of mind. It’s much easier to leave your account alone when you don’t see the balance every time you check your chequing account, so your savings have time to grow for when you need them.
5. Invest when you’re ready
One of the things I get asked all the time, and rightly so, is what people should be doing when it comes to investing early on in your career. In the same way that I said it was fine to press pause on finance stuff until you graduate, I’m going to offer some very situation-specific advice here: I personally think it’s fine to hold off on diving into the world of investing for the first six months you’re out of school.
There are very few times I’d advise “waiting” when it comes to investing—the best time is almost always now!—but hear me out.
If you have the brainspace and desire to jump right in and start investing ASAP? Awesome, and you should! But if you’re stressed out enough getting your budget under control and learning what it means to live on your new-grad income while finding a bit of money to save every month, I think you can cut yourself a bit of slack.
Instead of pressuring yourself to learn about stocks and bonds and index funds and robo-advisors just yet, set up an RRSP eSavings account or a TFSA eSavings account with Alterna Bank instead. You’ll get experience opening a registered account (and you’ll see how easy it is) and you can deposit savings that will earn 2.35%* until you’re ready to learn more about investing—and as bonus, you’ll be using the top-rated RRSP and TFSA savings accounts, according to Ratehub!
Trust me, that’s much better than where I left my RRSP and TFSA when I was too scared to invest post-graduation. Also, I left them sitting in cash for three years. Now you’re starting to see why I think a six-month grace period is no big deal, right?
Navigating this transition is big—and you can do it
Going from a full-time student to a hopefully-full-time employee is a big transition in a lot of ways, money very much included. Try not to stress out too much about getting everything sorted and handled within a month of graduation, and focus on the big wins. Learn how to budget your new income, live within your means, and put aside a bit of money every month. If you can nail those three things, you’re absolutely rocking it when it comes to personal finance.
*Interest is calculated daily on the closing balance and paid monthly. Interest rate is annualized and subject to change without notice.