Although there is some disagreement on the specific cut-off dates for Generation Y, there is concensus that this new cohort also referred to as “Millennials”, is the largest in Canada since the baby-boomers and is estimated to number in excess of 9 million. Born between the early 1980’s to the early 2000’s, Millennials are technologically savvy having grown up with the internet. They have also faced first hand the challenges of the aftermath of the Great Recession with many graduating during periods of the highest unemployment and worst financial turmoil since the Depression. In addition Millennials are entering an economy that has higher housing costs, more student debt, and fewer jobs available with defined benefit pension plans. As a result, managing personal finances, paying off student debt and saving for homes and retirement will require more planning and discipline then in previous generations. That being said, Millennials are more educated and positive about their future and with the right planning, they will be able to reach their goals. In addition, according to a recent Financial Post article, Millennials are embracing entrepreneurship at twice the rate of the Canadian average with 16% of Millennials wanting to start their own business as compared to 8% of Canadians as a whole. With time on their side, and an entreprenneurial spirit, the most important thing a Millennial can do is to take advantage of their age and start planning now. Here are five ideas to help get started.
1) Track spending for a month and develop a monthly budget. Tracking spending is a great way to identify amounts going to non-essential items. In addition it will identify variable and fixed expenditures that can be reduced which will allow one to save more towards their goals. Once spending is analysed make a budget by assigning costs to all essential items like food, rent, repayment of debt, savings and entertainment.
2) Pay down Student Debt. With any debt, it is important to set a goal. After setting a goal, make a plan to pay off the debt, and stick to it. Regular monthly payments provide the security and confidence that will allow you to become debt free.
3) Take advantage of TFSA’s. For Millennials who are paying minimal taxes, TFSA’s are a great way to take advantage of a savings vehicle that earns tax-free investment income when saving for larger expenditures, like a downpayment on a first home.
4) Leverage the tax deferral benefits of RRSP’s. Millennials who are earning higher incomes should take advantage of the tax savings and deferral provided by RRSPs. With many years ahead before retirement, they will have the benefit of many years of tax deferred compounded returns.
5) Maximize employer provided benefits. Many employers offer Defined Contribution Pension Plans, Medical Benefits, Group RRSPs, and Bonuses that can play a big role in a financial plan. Spend the time to understand what’s provided to ensure you are taking full advantage.
With time on your side, planning now, budgeting and taking advantage of the financial vehicles available will help ensure you are on track to reach your goals. Consult with your financial advisor if you have any questions or concerns on how to reach your financial goals.