How-to Guides

Congratulations! You've graduated from school and landed a job. Your salary, however, is limited, and you don't have much money (if any) left at the end of the month. So where can you find money to save? And, once you find it, where should this cash go?

Here are some ways to help free up the money you need for current expenses, financial protection, and future investments -- all without pushing the panic button.
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For most young adults, paying down debt is the first step toward freeing up cash for the financial protection they need. If you're spending more than you make, think about areas where you can cut back. Don't rule out getting a less expensive apartment, roommates, or trading in a more expensive car for a secondhand model. Other expenses that could be trimmed include dining out, entertainment, and vacations.

If you owe balances on high-rate credit cards, look into obtaining a low-interest credit card or bank loan and transferring your existing balances. Then plan to pay as much as you can each month to reduce the total balance, and try to avoid adding new charges.
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How would you pay the bills if your paychecks suddenly stopped? That's when you turn to insurance and personal savings -- two items you should "buy" before considering future big-ticket purchases.

Life insurance is a good step to take, but may only be a concern if you have dependents. In fact, at the age of 25 you're statistically more likely to become disabled than to die prematurely, according to a 2004 report funded by the nonprofit Actuarial Foundation. Disability insurance will replace a portion of your income if you can't work for an extended period due to illness or injury. If you can't get this through your employer, call individual insurance companies to compare rates.
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If you should ever become disabled or lose your job, you'll also need savings to fall back on until paychecks start up again. Try to save at least three months' worth of living expenses in an easy-to-access "liquid" account, which includes a checking or savings account. Saving up emergency cash is easier if your financial institution has an automatic payroll savings plan. These plans automatically transfer a designated amount of your salary each pay period -- before you see your paycheck -- directly into your account.

To get the best rate on your liquid savings, look into putting part of this nest egg into money-market funds. Money-market funds invest in Treasury bills, short-term corporate loans, and other low-risk instruments that typically pay higher returns than savings accounts. These funds strive to maintain a stable $1 per share value, but unlike most bank accounts, can't guarantee they won't lose money.

Some money-market funds may require a minimum initial investment of $1,000 or more. If so, you'll need to build some savings first. Once you do, you can get an idea of what the top-earning money market funds are paying by referring to imoneynet.com, which publishes current yields. Many newspapers also publish yields on a regular basis.
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In addition to looking at fees and the interest that you will be charged (also known as the annual percentage rate or APR), consider your lifestyle and past payment history when shopping for a credit card. Factors you may want to consider include:

• A fixed vs. a variable rate of interest. Most cards assess a variable rate, which can be reset monthly. In most cases, the rate of interest will not be less than a floor established by the card issuer.
• Minimum payment you are required to make.
• Maximum you can borrow without incurring an over-the-limit fee.
• Fees such as an annual fee, late payment charges, and interest rates on cash advances.
• Circumstances when the credit provider can change provisions of the agreement.
• How the company calculates the finance charge. Is it based on the average daily balance, the balance at the beginning of the billing cycle, or another amount?
• A low introductory interest rate, if offered. When is the rate likely to increase? What is the new rate likely to be?
• Incentives such as cash rebates on purchases, purchase protection, and frequent flyer miles.
• Your prior payment history. If you typically pay off your balance every month, the APR may be less of an issue than getting cash back with a purchase.

Some long-term financial opportunities are too good to put off, even if you are still building a cache for current living expenses.

One of the best deals is an employer-sponsored retirement plan such as a RRSP, if available. These tax-advantaged plans allow you to make pretax contributions, and taxes aren't owed on any earnings until they're withdrawn. Another big plus is direct contributions from each paycheck so you won't miss the money as well as possible employer matches on a portion of your contributions.

Don't underestimate the potential power of tax savings. If you invested $100 per month into one of these accounts and it earned an 8% return compounded annually, you would have $146,815 in 30 years -- nearly $50,000 more than if the money were taxed annually at 25%. Bear in mind, however, that you will have to pay taxes on the retirement plan savings when you take withdrawals. If you took a lump-sum withdrawal and paid a 25% tax rate, you'd have $110,111, which is still more than the balance you'd have in a taxable account.

If you're already participating, think about either increasing contributions now or with each raise and promotion.


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Beginning your working life with good financial decisions doesn't call for complex moves. It does require discipline and a long-term outlook. This commitment can help get you out of debt and keep you from a paycheck-to-paycheck lifestyle.
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