I’ve heard it said that “we cannot direct the wind, but we can adjust our sails.” This is especially true when it comes to financial planning.
I was a student at university for many years, most recently at UVic. Like many of you, I went into debt to achieve my educational goals and fought my way out of it. Back then, I had no idea what financial planning could do to help students address their financial crises and achieve their goals. My purpose in this column is to help students do what I did not until late in life: take advantage of significant opportunities to plan for, act upon and achieve some, if not all, of their financial goals.
My philosophy about the accumulation of money and assets is that they are mere tools — a means to the end of supporting yourself and your family and friends, if possible. Financial planning gives you more control when the winds of life pick up, and it allows you to acquire some measure of independence and engage in philanthropic endeavours. Since life is a journey on unknown waters, you can do little about the weather, but you can do much about adjusting the sails and direction of your ship.
Life aboard any ship is about routine, because routine can often save a ship from reefs and other dangers. Financial planning is something like this: engaging in routine activities that seem a hindrance right now, or perhaps just boring.
One of those routines is called “pay yourself first.” It is an old idea, but it is worth becoming acquainted with. If you pay yourself first (say $25 or $50 per month), you will get into the practice of saving. You will start to regain control of your finances instead of being caught in the debt/consumption cycle. You will begin to adopt the long-term view, and you will start asking yourself questions like, “Upon what do I spend my money? Why do I spend it? Is X worth my money?” If you think $50 is too much, take a moment to calculate how much you spend on extras like coffee, movies and delightful toys.
Check out the steps I’ve listed to start paying yourself first. And may your ship never take on water and always sail free.
How to pay yourself first
1. Put some money away every month — more in the summer if you can. A figure like $25 may not seem like much, but getting into the routine will make it that much easier to engage in serious planning and wealth creation when you are out of school.
2. Put it in a Tax-Free Savings Account (TFSA). This financial tool is great for everyone, but especially for students because money in a TFSA is tax-free. Do not think of it as a savings account. It is an investment account. TFSA monies can potentially give you better interest than a savings account.
3. Leave the account alone. Plan to let it grow.
Michael Hemmings is a former UVic student and a consultant with Investors Group. You can direct any financial questions you may have for him to email@example.com.