African in the Diaspora

How smart are you with your finances? It’s very critical for recent graduates and young adults in general to approach financial planning in a systematic way as the way we approach in our early years can set the tone for our future financial habits. Personal finance should be one of our key priorities. Our educational system does not really prepare us in this area unless we take courses that have this component. However, just because we may not have many opportunities to learn formally in the classroom does not mean we should remain financially illiterate.

Since I recently learned how mutual funds work, I am in no position to be giving out financial advice. Luckily, I’m connected to someone very skilled and talented in the area of personal finance. As promised in my previous post “9 Lessons for Recent Graduates”, I sat down with Dennis Maritim to discuss how recent graduates and other young people can approach their financial planning. Dennis is a Mortgage Specialist with over 5 years of service in the financial industry. He has extensive experience providing professional financial advice to individuals and businesses. Apart from making home ownership dreams come true, he is also passionate about helping people make sound financial decisions. Here are some quick tips from the expert!

On Savings & Investing:

1.What would you say to a new graduate working an entry level job who feels like they earn too little to save?

“Nothing is too little to save, money adds up. Take advantage of the compounding effect of interest rates. The most important thing about saving is to START doing it so you can build the habit. When you start with $20 every two weeks or every month, the goal is develop the habit so that when you are able to save more, the temptation to dip into your savings for unnecessary purchases can be avoided”.

2. What’s the best way to save?

“I would recommend automating your savings. Let the financial institution that holds your savings/investment account withdraw the funds automatically from your chequing/current account. Don’t lie to yourself that you will transfer it. ‘Pay yourself first’ as it is famously referred to.

3. Financial blogs out there are saying we should start saving for retirement in our 20s. How can we do this with little income after graduation?

“You are never too young to start saving. Start with as little as you can, automate it, make it regular in order to build a habit so you can continue once you have the resources to save more”.

4. Do I have to be earning a lot of money to consider investing?

“No; you can start investing in mutual funds with as little as $25 every month or every two weeks”.

5. Tips for creating a budget?

“Build a budget that balances your income and expenses and has some money allocated for savings & emergency funds. Use it as a guideline that you review every time you get paid and pay off your bills on time”.

On Debt:

6. We often hear there’s good and bad debt; what is good debt vs bad debt?

“For the most part avoiding debt should be the norm. However, in the society we live in, this may be a dream. Very rarely do you buy a house using cash without taking a mortgage. Good debt is an investment that will generate value in the long term and for the most part has a low interest rate. Examples of good debt include student loans, mortgages and to some extent car loans especially if the vehicle is used for business purposes to generate income. Bad debt is debt taken out for a purchase that will lose value or not generate long-term income. Examples of bad debt is credit cards with high rates of interest. Some of the worst bad debt is payday loans or cash advance loans. If not paid on time they may end up costing the borrower up to 300% per year”.

7. For someone who has multiple debts (credit cards, student loan, line of credits etc.), how should they prioritize paying it off?

“I would recommend paying off debt with the highest rate of interest first as they will cost you more in the long run if not attended to immediately. Pay it off as soon as you can. To put it into context, a $200 jeans purchased using a credit card and not paid off for years could end up costing you up to $300 depending on the interest rate”.

On Home ownership:

8. If owning a home is a goal for me, what should I do to prepare financially?

“For your down payment, I would recommend starting small and saving as little as you can but increase it gradually to meet your savings goal. Monitor and guard your credit bureau report as that is also important. In reviewing your application for a mortgage, the lenders will review your income, down payment and credit bureau report”.

Lastly:

9. Any other financial tips for recent grads?

“Don’t buy that brand new Audi as soon as you graduate. It will come, give it time. Deal with what’s important which is settling into your career and paying off student loan debts if you have any”.