Life after school
How young professionals can set themselves up for financial success.

About half a million Canadians graduate every year from a public post‑secondary institution.1 Degree, diploma or certificate in hand, they’re ready to start their careers. For many, it’s the first time in their lives they’re earning a substantial paycheque and gaining financial independence – years of education are finally paying off. It’s an exciting time full of opportunities, but it can also be a little daunting – after all, leaving student life behind often means added responsibilities like repaying student debt, establishing a career or practice and supporting your own lifestyle. It also means protecting what you have worked so hard to achieve, in case life throws you a curveball.

Whether you’re a young professional or you’re a parent who wants to give a new grad the best financial start in life, implementing strategies to effectively manage income can set young adults up for future financial security. It’s an ideal opportunity to get things right at the very beginning – and it can help set the stage for good financial habits throughout life.

Success strategy 1: Beware easy spending

That first paycheque in a new career is a thrill. But before celebrating at happy hour or splurging on a new work wardrobe, it’s a smart idea to come up with a plan for those funds.

A good first step is to create a simple budget that includes the basics like food and shelter and takes into account new expenses associated with working – everything from transit to dry cleaning to fees for professional associations. Look for areas to trim to keep money‑in and money‑out in balance.

Success strategy 2: Manage credit carefully

Many recent grads are all too familiar with credit – after all, more than 40 per cent graduate with student debt and, unsurprisingly, more time spent in school means higher levels of student debt. For example, while bachelor graduates owe an average of $26,300, doctorate graduates owe an average of $41,100 and medical school graduates owe an average of $56,000.2

Paying off student debt has to be an important financial priority in the early years post‑graduation – and it’s equally critical not to rack up other types of debt. That said, using credit carefully helps to build a sound credit rating that makes it easier to get affordable car loans and mortgages in future years.

So, it’s fine to use a credit card for convenience, but be sure to pay off the balance every month. And it’s okay to take out a line of credit for a specific purchase, but have (and follow through on) a plan to pay it back as quickly as possible.

Success strategy 3: Build a safety net

Professionals starting out should consider putting strategies in place to protect the income they’ve worked so hard to achieve. Be sure to allocate a portion of your budget towards an emergency fund – cash that’s available to pay life’s inevitable unexpected costs without borrowing.

When considering insurance coverage, it can be difficult to weigh the options. Life insurance is often promoted as the most important protection to have – but for young professionals, a severe illness or injury is more likely than death. This can mean time away from work and a sudden drop in income. Disability and critical illness insurance can provide protection that can easily fit in a budget – and some disability insurance solutions are specifically designed with price breaks for select professional designations including architects, dentists, engineers, lawyers and physicians.

Success strategy 4: Jump‑start savings

Already dreaming about a vacation next year – or even retirement? Start socking away cash now. Consider opening an account for a specific goal under the umbrella of a Tax‑Free Savings Account (TFSA). Within a TFSA, all growth is tax free, and there are no taxes and no penalties if you withdraw money before retirement.

If your employer offers a Registered Pension Plan (RPP) or Group Registered Retirement Savings Plan (RRSP), definitely consider taking advantage. The way a defined‑contribution pension plan may work, for example, is that the employee contributes a small percentage of their paycheque, and the company matches it – that’s free money available for the taking. Yet, surprisingly, many workers don’t make the most of these plans.3

Even if you're just setting aside small amounts, the discipline of saving regularly helps to establish good habits. Then, with each increase in salary, those small amounts can become larger amounts.

Talk to your advisor about financial planning strategies for young professionals – whether you have just finished school, or you have children entering the workforce. The key is to establish solid foundations today that will support long‑term prosperity.

WHAT’S THE RISK?

Life doesn’t always go according to plan. Understanding your risk of disability, critical illness or death based on your age can help you better prepare for the unexpected. Consider these risks facing four young professionals, all non-smokers.4
Calculate your results at InsureRight.ca and speak to your advisor.

1 Statistics Canada, “Canadian Postsecondary Enrolments and Graduates, 2015/16,” The Daily, December 7, 2017, Statistics Canada catalogue no. 11-001-x, www.statcan.gc.ca/daily-quotidien/171207/dq171207c-eng.htm (accessed June 15, 2018).
2 Statistics Canada, Graduating in Canada: Profile, Labour Market Outcomes and Student Debt of the Class of 2009–2010 – Revised, section 4, last modified November 27, 2015, www.statcan.gc.ca/pub/81-595-m/2014101/section04-eng.htm (accessed June 15, 2018).
3 business.financialpost.com/personal-finance/retirement/canadians-losing-out-on-as-much-as-3-billion-in-free-money-defined-contribution-pensions
4 insureright.ca. This data is current as of May 2018 and for illustrative purposes only. Mortality probability based on the Canadian Institute of Actuaries’ CIA9704 gender and smoker distinct mortality tables. Disability probability based on the 1985 Commissioner’s Individual Disability Table A gender distinct incidence tables for Occupation class 2A, 90-day waiting period. Critical illness probability based on combined incidence rates for Cancer (“New cases for ICD-03 primary sites of cancer: 2002-2007”) and the Heart and Stroke Foundation of Canada (“The Growing Burden of Heart Disease and Stroke in Canada, 2003”).
5 The probability of dying, becoming critically ill or disabled before age 65 was determined by projecting claims experience to age 65 using these incidence rates and determining the probability of at least one event occurring. The probability of at least one event occurring is less than the sum of the probabilities for all three events, as individuals may incur multiple events.