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Young pros: Think twice about an RRSP

Young Turks take note: you too need to consider your financial health now in order to avoid potential catastrophes further down the line. The good news is time is on your side. But what you do with that fleeting advantage will largely determine how your finances fare in the decades ahead.

"The interesting thing about young professionals, people that have just gotten out of college or grad school, is they really have a huge advantage over everyone because they have time on their side," remarks Bob Stammers, CFA, director of investor education, CFA Institute in New York City. "Their ability to take risk and take advantage of equities and riskier assets are much higher than everyone else but unfortunately, they're also in a position that they can't in most cases because they just don't have the income.

"It's not so much about age as it is disposable income, 'what can you afford to save and where can you get the best return on your money?'"

Pay down student debt or start saving?

Most first-time workers are carrying the weight of large student loans and they'll have to make a crucial decision about what to do with their discretionary income. Herein lies a genuine opportunity to ensure one's future won't be saddled with debt. It comes down to discipline and knowing where your money goes at the end of the day.

"Save first and spend second. Figure out where you need to save your money, what are you saving for, put that money away first and then spend what's left over," he says. "Most young people get their money, spend it, and hope if anything's left over at the end of the month they'll save it. But usually there's nothing left at the end of the month because we always figure out a way to consume."

Think twice about an RRSP

And contrary to what some might recommend, Stammers says to consider delaying enrollment in a RRSP program. The reality is a lot of young professionals have more pressing issues than retirement, Stammers continues. If you have the finances and discipline to invest in your retirement, then you should, but he cautions the young that money put in their RRSP is money they can't access for a long period of time.

"Think about where you want to spend your money. Unless those include buying a house or using the money for secondary education because there are plans within RRSPs to borrow the money to do that, it may not make sense to increase your contributions to your RRSP," he says. "You're not going to be able to get that money out if you need it and if you do take it out, the penalties are quite significant."

Matthew Semple, manager, wealth management at National Bank in Montreal, recommends much the same that Stammers does. He says to start by taking a look in the mirror and asking yourself what your personal goals are.

Seek out professional advice

The CFA Institute's Stammers also recommends young professionals make a point of speaking to a financial advisor. He also says to focus on building an emergency fund and to refrain from relying on credit cards to bail oneself out of financial trouble. At a minimum, aim to save up to six months worth of salary in a savings account if possible.

And if you happen to get a pay increase, don't be fooled into thinking you can suddenly afford to splurge. Stammers says to save any increases in pay, maintain discipline, and live within the same means you always have.

Looking for help on how to choose the right financial planner? The Financial Planning Standards Council offers useful tips to consider. In terms of finding a financial advisor, see Advocis's website; the Financial Advisors Association of Canada can certainly help you find suitable contacts in your province.