By Nicole Farrell
At first glance, moving abroad sounds too good to be true. Weekend trips to Paris? International experience on your resume? Hot foreign accents? Sign me up. Then reality starts sinking in. How much is this going to cost?
If you have no idea where to begin to learn a budget, don’t worry. Neither does most of the population. School is meant to prepare us for the big, scary world that awaits us after we graduate. I finished high school knowing how to solve for x, how to play “Oh Canada” on saxophone, how to synchronize swim, and many other useful talents I figured would take me far in life. I thought I was all set, until I stepped foot in a bank and realized I had no idea how to do anything with money. There was never a mandatory personal finance class I had to take to be considered a functioning adult, so I was stuck doing it all on my own.
I started university with a goal in mind: have enough money saved to go to Ireland as my graduation trip. 4 years later, I graduated with more than enough money to get to Ireland, along with a nice nest egg growing slowly to fund future travel as well without having to go into debt.
Here are my tips for you to save you the time and energy I spent as an unprepared English major in the world of finance:
BANK ON IT. The best thing I ever did to start my education in personal finance was switching banks. When I was with my original bank, I was pressured to buy credit cards and upgrades I didn’t need, so I felt completely intimidated talking to them about my options. I was terrified I would get roped in to signing my soul away for a good deal on interest rates. I looked into switching and was recommended to try a Credit Union. I was able to get to know my financial advisor and he took the time to explain everything to me without pressure of any commissions. Having someone on your side that you feel comfortable with is a really important step in taking the fear out of banking, along with getting the necessary information on how accounts work. It’s your money, and they’re there to work for you, not the other way around.
One of the best options for short- term savings would be to open a TFSA (Tax Free Savings Account). Although it’s best not to touch these savings too much, you can take the money out more easily than with other investment accounts and true to its name, you aren’t taxed on any withdrawals or interest. However, there is a limit on how much you can deposit each year. For 2012, it was $5,000 and for 2013 it is $5,500. This accumulates each year as your total contribution amount, if during that year you are 18 or older, have a SIN (social insurance number) and are resident in Canada. Be sure that you don’t over contribute to this account either, because while the government is throwing us a bone with this no-taxes bonus, if you over contribute they will tax you on it just to show you can’t get away with anything. Also be aware of how much you can contribute because once you put that amount in, it’s registered for the year. Let’s say you have a limit of $10,000 and put in the full amount in January. If you decide to take out the full $10,000 later in the year to spend, decide against it and want to put it back in, you can’t. The first time you put that $10,000 still counts, so for all your account knows, it already had its limit fulfilled. You’ll have to wait until the next calendar year when your amount goes up to contribute. Having fun with all this exciting tax talk? This will get your attention: Depending how much you have in your account, you can earn possible $100’s of dollars each year by doing jack squat. You have compound interest to thank for that.
Bonus Banking Tip: Try to open accounts with the lowest fees possible. I managed to open a chequing and savings account with unlimited transactions at no cost, as long as I keep a certain amount in my account and don’t go under. I found this to be a great way to learn not to touch my savings along with getting free transactions. I also never use ATM’s. Plan ahead, take out as much cash as you need for the week, and don’t use the ATM at your convenience. Those $1.50 transaction fees add up, which brings me to my next point:
CUT THE CRAP. How much money did you spend today? 5 bucks? 10? Maybe you think you didn’t spend anything since you can’t remember buying anything. Now, tomorrow, write down everything you spend. Getting in the habit of writing down what you spend is also a great way to start budgeting, since it makes you aware of where your money is going and what you need to reasonably spend. The coffee you buy in the morning, the lunch out with co-workers, the impulse magazine and gum purchase. It adds up VERY quickly, let me tell you. Even if you only spend $5 or $10, think of how much that is over the course of a month-and how much those small amounts would add up in a savings account instead. If you put $5 away each day for 30 days, that’s $150. If you put that amount every month into a savings account, by the end of only 1 year you would have $1,800. Depending on your interest rate, you could earn an extra $30-50 bucks as well without even trying. All of that just by drinking one less latte each day. See 10 ways to save for travel and if you want more 28 ways to save for travel for tips.
Another way to cut the crap: stop shopping! I’m not saying be extreme about it, but I am definitely not an impulse shopper which has benefited my savings account greatly. If there’s something you see that you want, wait a day. Just one day. That’s all. Usually by the day after, you’ll either have forgotten about it completely or won’t want to bother going back to the store to buy it. If you’re still interested, consider buying it now that you’ve had a rational amount of time to think before blindly throwing money in its direction.
A note about credit cards: The bottom line of using credit is if you don’t have the money in your account, you can’t afford it. Credit card limits do not equal free money. Credit card companies have made billions off of compound interest, which is what YOU need to start taking advantage of instead. Student loans are a bit different since education is a good investment. $500 designer shoes? Not so much.
MAKE IT AUTOMATIC. You’ll find this suggestion in almost every self-help book or article related to saving money ever written, so I unfortunately cannot take credit for its simple genius. I can attest to the effectiveness of it, though. It is so, so much simpler to save when you literally don’t have to think about it at all. Remember your best friend/financial advisor? Go back and visit them (they will appreciate the company, working in a bank is more boring than learning finance in the first place) and get them to set up automatic deposits for you. This means that when you deposit a paycheque, a portion of it is immediately added to your savings account (I recommend choosing one that’s not easily accessible through debit card use.) Start small, maybe just 10% of every paycheque, but definitely bump it up the more you want to save. Since this will happen automatically, start pretending that it’s just another tax deduction. It softens the blow a little of losing that money each paycheque, since you’ll no longer see it as potential spending money. You’ll be pleasantly surprised when a few months down the line you check your savings account and see that it’s gotten much fatter.
Getting yourself together financially is the most important step in becoming an adult, especially if you want to move abroad on a SWAP Working Holiday. There’s no getting away from paying rent or buying food, so know going in that budgeting is an essential life skill. Once you’ve mastered that, other opportunities become less fantasy and more reality. Surfing in Australia, clubbing in London, bungee jumping in New Zealand- let the sky be the limit, not the depth of your pockets.
This article is only meant to get you started, and to show you that it’s not as intimidating to educate yourself as you might think. All I had to do was talk to an advisor at my bank and do some Googling. It’s not hard to learn, and it pays off-literally.