In Canada, you’re legally an adult at 18 or 19, depending on your province. But feeling like an adult? That’s a whole different story.
Key adult life events to budget for include life after graduation, marriage, kids, empty nest, and retirement. You’re not going to tick all of these off your list at once, but as you prepare for adult life, it’s important to understand how much you need to save for each, unexpected expenses to watch out for, and the best saving strategies.
Life after graduation
Key moments:
● Student loans
● Credit card debt
● Renting your first apartment
● First job
● Saving
This is an exciting time, you’ve graduated from post-secondary education and are out in the world. There’s a lot to think about. When it comes to your finances, you may have some debts like student loans or credit card debts. Cindy Marques, a certified financial planner and director at Open Access Ltd., says to pay down the high-interest debt first.
“When it comes to carrying credit card debt, as a new grad, you are just testing out your sea legs with managing debt and usually, you tend to go a little nuts with credit cards.”
She says that since student loan interest is very low, with zero on federal student loans (and prime plus one per cent, depending on your province), it’s better to save for things like rent.
When it comes to saving, Eve Wong, co-founder and Chief Operating Officer at Borrowell, says this is the time to develop good financial hygiene.
“The first priority is to make your student loan payments and pay off your credit card every month. I would do that over savings, but I would try to save 10 per cent every month because time is on your side.”
She recommends putting it in an emergency account or TFSA, where it’s easily accessible.
Marques also encourages participating if your employer offers a matching RRSP program.
“If your employer offers a matching program, I highly recommend getting on that sooner than later. Compound interest is a wonderful thing.”
One popular method is the 50-30-20 method, where you put 50 per cent of your money towards needs, 30 per cent to wants and 20 per cent to savings.
It’s an easy method, but Marques says it helps to really commit to a strategy when you know exactly what you’re saving for.
Marriage
Key moments:
● Wedding costs
● Buying a new home
● Combining finances
● Starting a family
Weddings cost between $22,000 to $30,000, so communication with your partner about expectations and cost is key. The same applies for things like saving to buy a home and combining finances. If you’re thinking about having kids, it’s also never too early to think about the cost of parental leave.
“I was financially prepared (for maternity leave), but I didn’t realize how expensive daycare would be for going back to work,” says Wong.
Marques agrees, saying future parents assume that they will get 55 per cent of their salary during parental leave, but that’s not the case.
The maximum weekly amount is $668, which for 52 weeks is $34,736.
“This is the time to give yourself a bit of grace and understand that you might have to take a pause from all of your savings goals during those first few years of being parents and preparing to be a parent because your cash flow is going to be way out of whack,” she says.
“We prepare for it as much as we can but we don’t actually know what this new life is going to cost us during the thick of it.”
Kids
Key moments:
● Saving for education
When it comes to saving for your child’s education, Marques says to put in just what you need into your child’s RESP.
“You probably don’t necessarily need to save more than what’s going to max out the grants,” she says. Currently that’s $2,500 to your RESP per beneficiary per year.
Wong also suggests considering life insurance, especially if you have a mortgage and kids.
“Once you have someone depending on your income, then you need to think about what happens if you’re not there anymore.”
Empty nesters
Key moments:
● Paying off debts
● Boomerang kids
● Planning for retirement
This is the age where the kids have (mostly) left the nest, and you’re on track for retirement. But according to Marques, Canadians can be overcautious about the amount they think they’ll need to retire.
“Use financial calculators to find out if you’re on track, and don’t wait,” she says.
“This is the opportunity to give yourself permission to go on those trips or to enjoy life a bit – the pre-retirement stage of your life, where you have the freedom and you’re not shackled down by the kids anymore.”
Wong says that if your kids boomerang back home, it’s OK to help them, but prioritize your needs and “making sure that you’re able to retire.”
That might mean redirecting mortgage payments to retirement funds once your home is paid off.
Retirement
Key moments:
● Affording retirement
● Beneficiaries
● Remaining debt
To Wong, it’s crucial to try to pay off as much debt as you can before this stage, since this is where you will be on a fixed income.
It’s also important to have a will. When it comes to leaving an inheritance to children, Marques suggests giving it to them when they’re younger so they can use it towards a home or even starting a business.
“(Too often) it’s passed on to your already very old children who (will) also pass it along to their kids when they’re (also) old. There’s just the cycle of gifting money to adults who are already in retirement,” she says.
Adulting may not be easy but when it comes to good financial hygiene, a few good habits and regular check-ins with yourself, your partner, and a financial planner can help be ready for the unexpected.
