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Here’s the good news: You’re not falling behind if you don’t have everything figured out right away. The key is to start small, stay consistent and build a plan that reflects your priorities.

Budgeting 101: Get real about needs vs. wants

One of the biggest mistakes new grads make is trying to wing it with money. That’s why creating a monthly budget is an important first step, says Jodi Wright, senior director of youth and young adult client strategies at RBC. First, figure out your net income. “You can’t just divide your salary by 12 and call it a day,” she says. “You need to see what’s actually hitting your bank account after deductions.”

Next, write down all of your fixed monthly costs — think rent, groceries, student loan payments and transit passes. From there, you can figure out how much you can spend on discretionary costs like dining out, streaming services, clothes and Ubers. “The little things add up faster than most people realize,” says Wright. “It’s important to understand the difference between wants and needs.”

Kate Norris, a certified financial planner at Sun Life, encourages new grads to take a look at their recent spending patterns when budgeting instead of estimating costs. “Pull your last three to six months of bank statements and look for patterns,” she says. “You might spend $100 on gas one month, $150 the next, and $70 the next,” she explains, and you can use the average number for your budget.

If you need some help getting started with your budget, there are online calculators that offer prompts to help you fill one out. Most banks also offer budget calculators that can send you alerts if you’re starting to overspend.

Save before spending

When creating your budget, be intentional about saving for the future. “The savings has to happen before the spending,” Wright says. If your budget leaves extra money after needs and wants, that money should be put away. Once new grads have a handle on their budget, Wright suggests setting up automatic contributions to a savings account on pay days. “You pay yourself first and establish the habit, and don’t give yourself the opportunity for impulsive spending,” she says. 

“The most successful process I found with clients is the envelope or jar method, where you’re actually earmarking dollars for a specific thing,” says Norris. Twenty-five years ago, this meant taking out cash for the month and dividing it into envelopes. These days, most banks let you label your accounts online (you could call your travel savings “Bucket List Fund”), so the method is still digital-friendly.

Matthew Evans, certified financial planner at Wealthsimple, agrees that automatic contributions are a good idea and suggests looking into a high-interest savings account or tax-free savings account (TFSA). “Automating savings by setting up transfers to a TFSA after each pay cheque makes it easier to stay consistent. Starting small (even with $25 a week) can grow significantly over time thanks to compound interest,” he says.

Evans points out that it’s also important to look into employer offers, such as RRSP matching programs.

“Many employers have options for matching or setting up an RRSP or pension,” Norris says. “It also automates those savings for you. Often, the employer will take it right off your pay cheque.”

Build an emergency fund

Establishing an emergency fund is also really important for a new grad. The main reason is so that you’re not taking on more debt or dipping into your future savings in the event of an emergency, says Norris. “The last thing you want is to have to fix your vehicle and have (that cost) sitting on a credit card indefinitely,” says Norris. Keep your emergency funds in a separate bank account, such as a high-interest savings account, that you can access at a moment’s notice if needed. Norris says that depending on your living situation (and whether or not you have disability and critical illness insurance through work), you should set aside three to six months’ worth of living expenses.

Makeda Kafele-Green, a 22-year-old health studies student graduating from Wilfrid Laurier University in June, has a savings account she’s labelled “Do Not Touch” for emergencies. “I try not to dip into it unless I really have to.”

Make a plan to deal with credit and student debt

Paying down debt is important to include in your monthly budget as well, especially when it comes to credit cards. Evans recommends prioritizing high-interest debt like credit cards over student loans, which typically have lower interest rates.

Wright says new grads may want to consider opening a line of credit that has a lower interest rate than a credit card. “If you can’t pay off your credit card balance in full one month for whatever reason, you’ve got access to a line of credit at a much lower interest rate,” she explains, so you can take money from the line of credit and bring your credit card balance down to zero. Then you can work at paying off the line of credit. She suggests starting with a low amount, around $5,000. “It’s a great way to continue to build up that credit score while also having that backup,” she says. “But it really should be treated as an emergency fund for situations where the credit card balance can’t be paid.”

Norris also recommends limiting your debt ratio. For example, if you have $10,000 of available credit and you don’t need access to that much, ask the bank to lower your credit limit so that you can’t take on any more debt beyond what you currently have.

For Kafele-Green, “the biggest doom cloud over my head right now is the tuition fees that I have to pay back. It starts pretty much right after I graduate. It’s that stress of, ‘How am I going to pay for that?’ ”

The good news is that “a student loan or a student line of credit is going to have a much lower interest rate than a credit card,” says Wright.

“For low-interest student loans, make at least the minimum payments while also putting money into savings,” suggests Evans.

Watch for lifestyle creep and avoid comparison

When transitioning from a frugal student lifestyle to a full-time job, you may be tempted to spend more on wants. “The biggest pitfall (I see) is overspending initially,” says Norris, adding that if you have leftover cash at the end of the month, the best move is to put it toward your debt or save it.

Wright says it’s also important to avoid comparing your lifestyle to others. Get honest with yourself about your budget and focus on your own priorities. “There might be a time when you have to say, ‘I would love to join my friends for dinner, but I’m tapped out for this month,’ ” she says.

Kafele-Green is already learning how to balance her needs versus wants. “Sometimes I think I have more money than I do,” she says. “Then I check my account and realize I only have enough for rent and groceries — there’s no extra spending money. It sucks sometimes when I want to go out with my friends but I know I need to save. That’s just how it is right now.”

Palombi has faced tough moments during her transition from student to working full-time, but at the end of the day, she’s proud of her progress. “I’ve always wanted to be financially independent, and it feels really good to be doing that now,” she says.

You want to balance the joy of being independent and having your first job, says Wright, and “everyone is going to make some mistakes.” The key is to learn from those mistakes and revisit your budget regularly. “You need to be able to take a good look in the mirror and figure out what is important to you, what your goals are and the reality of your situation.”