Canadian Personal Finance Blog

I got called by Insight Magazine to give some advice to new grads on what they should be doing about their finances, and I gave some answers to the interviewer, but as usual, I am not sure I was very clear or eloquent, so now I will attempt to be more clear to those that might read the article coming up.

Get The Heck Out of Debt

You have just graduated from University, and you might be carrying upwards of $40K in debt (hopefully in student loans only), you most likely won’t be paying that debt off in your first year of working (should you find a job right away) (if you can pay it off, good for you!), however, you should put together a plan on how you are going to pay off that debt and WHEN it will be retired. 

Carrying debt is a drag on your finances, and the sooner the debt is retired, the easier your financial life will be. You should not aspire to “get used to living in debt”, this is the one thing my generation does NOT want to hand down to you.

Don’t Fall In Love With Having Money

Just because you have graduated from University and you no longer have to eat Kraft Dinner with Hot Dogs for dinner, does not mean you must go out every night to eat. You have lived a frugal lifestyle as a student (I am assuming), but if you continued that frugal lifestyle for a while longer, you may be able to pay down your debt faster and then be on a much stronger footing financially.

Yes, you deserve to enjoy life, but it is very easy to get used to the “Let’s go out to dinner tonight we deserve it” lifestyle, and once you are in that lifestyle the habit is very hard to break (speaking as a 49 year old, I can attest to that issue).

You cannot live your parents’ lifestyle (yet) so don’t try. It took them 30 years to get where they are, don’t rush your spending habits to mimic their spending habits.

If your parents paid for you to have a Blackberry or an iPhone or paid for your Cell phone bill, maybe it’s time to get rid of this expensive toy? You don’t need $120 a month cell phone bills. Discretionary spending (i.e. money haemorhage) is a bad thing which you must watch diligently. Middle age men’s wastes spread, but their spending spreads like that as well, don’t let it happen to you.

Have a Savings Plan

The sooner you start saving, the better it will be for you when you reach my age, however, saving while still carrying discretionary debt (i.e. non-mortgage debt) is paying Peter to feed Paul. Lowering your debt is first and foremost, if you have left over moneys from your year, yes, starting an RRSP early is a good thing to do, but pay your debts first.

Savings is good, getting out of debt is better.

Get the Heck out of Debt

Did I mention this yet?

Banks Can be Negotiated With

As I have pointed out before Free Banking is possible, but it is more likely for old farts like me, who have a good track record with the bank already.  Paying $12-$25 a month in bank service charges you should try to avoid, since you most likely don’t use enough services with the bank to justify this charge. Go with as cheap banking as you can.

The Three Worst Ideas After Graduation

1. I deserve a new car! -or- I deserve a vacation in Las Vegas!
2. I’m a little short until my next pay cheque, I’ll get a pay day loan
3. I am only carrying a few hundred dollars on my credit card balance this month

Keep this in mind, did I mention Get the Heck Out of Debt?

Corollary On Yesterday

Yesterday’s advice of making sure you buy the first round when going out drinking (as pointed out, this does assume that more than 1 round is going to be bought), I view as important, but there is a corollary to this theorem.

If you borrow something from your neighbour, say a cup of sugar or some aluminum foil, always pay back in full. If you borrow a cup of flour, buy your neighbour a bag of flour, if you borrow aluminum foil, buy a new roll of 50 feet. This kind of pay back is cheap, and assures you a good reputation as a good neighbour.

Best Advice Ever

When I went off to University, my Father gave me possibly the best advice I ever received that I still use to this day.

I was going away to University and I had never really lived away from home, so when my Father came into my room the night before I left for school, he came into my room and I expected a long lecture about how I should work hard to live up to my potential or something like that.

My Father told me that since his parents didn’t go to College (my Grandfather was a carpenter and my Grandmother a piano teacher) the only advice my Father got was from his Uncle. My Father said that the advice was very good so he decided to give me the same advice.

I sat transfixed waiting for my Father to tell me this advice, and I must admit it was very good:

“… Always drink at least two glasses of water before you go to bed, if you have been out drinking…”

That was it, sounds simple doesn’t it? Sounds flippant as well, but surprisingly I don’t view it that way. This was genuinely useful advice from a man I respect, so I pass it on to my readers, hoping it helps you.

What is more intriguing is I mentioned this to Larry MacDonald and surprisingly had never heard this advice. Even more surprising is that Preet from Where Does All My Money Go had heard this advice and had even better advice. 

For those that don’t know the water is to stop the dehydration that the alcohol causes, however Preet pointed out that there is a need for electrolytes as well so you should either drink something like Gatorade which has those, or if you have only water add some salt to it, because that may help with the inflamation that comes with the hangover as well.

Interesting to get good advice, and then have that advice refined like that.

I just wish I had similar good financial advice to give you all, but I don’t.

Parents with Students at University

Another important tax savings to remember is if you are like me and have kids that have tuition expenses for post secondary education, remember they can transfer their:

• Tuition
• Books
• Full Time/Part Time living expense

Credits to you, but they must show that on their tax returns (and not use it themselves).

As kids earn more money, or if like me they are in a Co-Op program, students may need to use the tuition credits themselves, and also remember you only get $5000 total to transfer (and also don’t forget provincial credits as well).  

Remember students can also transfer these credits to Grandparents should they be the ones supplying the moneys as well!

Are your kids filing tax returns? If they are 18 or older (or is it 16) they should, just to get things rolling for them (and with QuickTax, it’s free anyhow). Takes about 10 minutes to do, and sometimes good things happen (like GST credits and such).

This Week in Personal Finance

Unemployment numbers come out this week, on Friday as well as a torrent of financial numbers from many areas. Will the Financial Apocalypse continue? Stay tuned!

Since I am doing my taxes here are some other important deductions you should remember (if they apply to you, of course) .

Transit Pass Credit

Remember if you take the bus (or your kids do), you can use the Public Transit Tax Credit . Remember if your kids use a bus pass the following as well:

Yes, you can claim the tax credit for public transit passes on behalf of your spouse, common law partner, and your children under the age of 19, to the extent that these amounts have not already been claimed.

So the expense is transferable as well, useful to know that one.

Education

Having a child in University means I can claim her tuition on my taxes, which is not a bad thing. Since this is the first year for me with this, it is important to get all the forms done right, so please read over the web page and such and make sure the student involved fills in all the forms to allow for the transfer of these credits to you. I am still muddling through this one and will keep you posted on my progress. 

The maximum tuition, education, and textbook amount transferred from a child (or fromeach child), is $5,000 minus the amounts that he or she uses, even if there is still an unclaimed part. Tuition, education, and textbook amounts that the student carried forward from a previous year cannot be transferred.

So $5000 max per child is another important point to remember. This is where the High Price of University comes back to help you a little.

Charitable Donations

Now is the time to rummage through your papers to find ALL the receipts that you so carefully stored away when they arrived (yes I am being sarcastic, about myself, I may one day take a picture of my home “work space” to show you just how cluttered and disorganized it is). Each one of these receipts is money back in your pocket, so make sure you find them all. 

I have a cross-reference method, since I use Quicken, I check in Quicken for my Charitable expenses and then go and hunt down the receipt (or send the charity a note asking for a duplicate).

Also make sure this is a valid charity, you can go on the CRA site to see which charities have had their Charity designations revoked.

Manual or Computer?

This is an interesting question I ask folks and sometimes get an interesting answer. I have been using various computer software to do my taxes ever since it was possible (I have a Math degree, not an Arithmetic degree), but I do know that Michael James on Money enjoys doing his taxes manually using forms and pencil.

Does anybody else use pencil and paper still? Do you use a service to make up  your taxes, and if so why? My taxes this year are going to be confusing, but still not complicated enough that I would pay to have someone else do it, but that may change in the future.