Millennials are a highly discussed generation for several reasons, some good and some bad. One of the prime things they are known for, however, is a financial struggle, a debate that continually rages both online and at the dinner tables of between baby boomer parents and their millennial offspring. The good news is that Millennials are earning more than previous generations; the bad news Millennials have higher debt and a much bigger gap between the wealthiest and poorest among them.
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We can blame student loans, high cost of living, employers rolling back benefits – and of course, who can forget the irreparable damage that avocados have caused this entire generation. But, regardless of where the debt is coming from, for the 27.5% of Canadians that are between the ages of 18-35, they’re spending more, saving less and for those who answered on one particular 2017 survey, it sounds like they have given up on their financial health all together and prioritized relationships over their finances.
The truth is, financial fitness doesn’t need to be all that difficult. Between all the online resources, apps, tax credits, and services taking that first step to making some positive changes isn’t hard – especially when you know a few of the following hacks, starting with…
- Know your ratio(s)! 10% of your before-tax income should be going into savings (You can find this on your T4 if you’re unsure.), Based on the average $44,093 after-tax salary, that’s about $480/mth which adds up to $5,770/yr going into savings. This leaves behind $3,193/mth to live off – including rent. Which is supposed to be only 30% of your living expenses, but for most Millennials, it’s likely to be 45%.
But don’t worry, there’s a hack for that too.
- Get a lease guarantee. Third-party lease guarantors are new to Canada, but they’ve existed in other high rent markets, like Switzerland, for over 20 years. Traditionally, if a potential tenant didn’t meet the requirement to lease an apartment they could get a friend or a family member to vouch for them. It basically assures a landlord, if you couldn’t pay your rent this other person would. With a third party lease guarantor, like Locnest.com, they step in and vouch for the tenant. For a student with low credit, a newcomer who may have no credit or anyone who wants the edge to get that apartment they really want, a guarantee carries more weight in the eyes of the landlord than just going at it alone. The guarantee backs the tenant against non-payment of rent and damage (including pet damage) and replaces the need for a landlord to collect last month’s rent. In short, for a small annual fee, besides helping alert a future landlord of a credible tenant, it could free up $1500 or more.
Now there is an additional $1500 that’s come back into your pocket, where should you save it?
- You need an RRSP. Don’t listen to the 39% of Canadians that say there’s no point to an RRSP – there is every point to an RRSP! Reserved Retired Savings Plans are the gold standard for savings. They do double duty by reducing your taxable income for the year and saving for retirement. Invest the $1,500 saved from the Locnest lease guarantee and that’s an additional $1,500 that applies as a deduction on your income tax. There’s a chance, you’ll get it back on your return. And, if you really want to benefit from RRSPs, invest your tax return in your RRSP and you will get that back the following year. Do that every year and you are making a retirement income with “free” money. For that initial investment of $1,500, you could save $145,000 by the time you retire.
How about if you want to save more money without thinking about it?
- There’s an app for that. Mylo, a Montreal-made app, rounds up your everyday purchases to the nearest dollar and invests the extra money in a diversified portfolio. The app does a pre-authorized debit from a linked bank account or credit card every Monday and deposits an average $10-$15 a week, ($520-$780/year) into your investment account.
The other great thing about this app is that it can be set to deduct any additional amount you want into your investment account – such as your 10% savings ratio we kicked this list off with.
The truth is, you’re more likely to save if you don’t have to worry about moving money around. Including for spending money.
- Make your allowance (aka – a discretionary budget) not look like an allowance. It’s the least glamorous of all the tips, but it is a cornerstone to being financially savvy. Having a monthly allowance to spend on food, going out, clothing and having fun protects against overspending. Where the challenge is, most of us have one chequing account and one savings account, running the risk that your discretionary budget (which should be 22.5% of your net monthly earnings) could bleed over and maybe even impact your rent or savings.
This is where KOHO comes in handy. KOHO is a pre-paid and reloadable VISA card that earns cash-back like a regular credit card without the borrowing. It’s free to use and set up, you can use it internationally and once you send your KOHO account an e-transfer, it’s loaded and you have an easy to manage a budget for fun money, without blowing the bank. Keep in mind that you can’t earn any interest on the money you store on the card, and you can’t use it to build your credit, making KOHO most useful for managing a monthly spending allowance. Also, don’t get lured by the $9/mth premium tier which grants a 2% cash-back bonus. If you’re among the Millennial average, your discretionary budget would be around $395, so you’ll lose money by taking on the paid tier. By sticking to the free tier, you’ll still get 0.5% cashback, which is “free” money.
Got some financial fitness hacks of your own you’d like to share? Tweet at us today at @weraddicted!