Insights & advice
How to manage your finances when starting your career
April 2022 – 15 min read
Starting an entry-level job in your chosen career is a great time to start focusing on your finances.
With your salaried income, you can make a plan that will help you cover expenses, pay down student loans, and save for the future.
By understanding your income and expenses, you can plan to achieve your short-, medium- and long-term financial goals.
Starting your career is an exciting step to take, and it’s important to celebrate this successful milestone. As you start to receive a regular paycheque, this is also a great time to look into managing your finances to set yourself up for success. There are some decisions you can make with your money now that can help you stay on top of things like student debts while also being able to save for the short- and long-term.
Learn to manage your day-to-day finances
Your first salaried paycheque is a milestone, and it can be tempting to splurge to celebrate. While now might well be a chance to treat yourself, it’s also a time to look at your take-home pay to determine how you’ll make this money work to meet your needs now, and help with your goals later.
First, you’ll need to determine the difference between your salary and your take-home pay. Your salary is the dollar amount you’ll be paid before any payroll deductions, also known as your gross pay. The take-home pay, or what’s left after these deductions, is known as your net-pay.
Examples of deductions include taxes, contributions to the Canada Pension Plan (CPP)Opens in a new window, the Quebec Pension Plan (QPP), and Employment Insurance (EI). If your employer offers workplace benefitsOpens in a new window, then you may see deductions to cover the cost of your plan as well. As soon as you receive your first paycheque, you should look your paystub in detail to better understand payroll deductions.
Once you’ve accounted for what’s coming into your bank account, you’ll need to see how your take-home pay will cover the outgoings, known as expenses. The easiest way to keep track of expenses is to create a budget. This is a plan for how you spend money each month, covering your needs, wants and savings.
Needs could include rent, loan repayments, and groceries, wants could include travel expenses and things like meals out or concerts, and savings cover contributions you make to an emergency fund or a workplace pension.
As part of that budget, you should think not only about the money you’ll spend on everyday living expenses, but also about any contributions you’ll be making towards your long-term financial future.
Create a long-term financial plan
Now you have a steady stream of income, it’s time to not only think about how to meet the wants of now, but also how to meet your needs in the future.
As you start an entry-level job, planning for retirementOpens in a new window might seem like the last thing on your priority list.
However, now is actually a great time to think about saving for retirementOpens in a new window, as the longer you save, the more you’ll accumulate in both savings and interest. Starting to contribute what you can now could make all the difference in your later years.
As you start to save for life in 50 years’ time, you can also think about what you might want to achieve in the next 5, 10 or 20 years. Some of life’s milestones may seem a long way off, but again, saving even a little now can help grow your moneyOpens in a new window when you need it.
One key reason to start saving early is compound interest. Compound interest helps make your money grow faster because interest is calculated on the interest accrued over time, as well as on your original contribution. Compounding can create a snowball effect, as the original investments plus the income earned from those investments grow together.
Perhaps you plan to buy a houseOpens in a new window 1 day or get married and start a familyOpens in a new window. Maybe your medium-term plans include going back to school, starting a business, or travelling. In addition to contributing to a pension plan to save for your long-term future, now’s the time to start contributing to a savings account to help you pay for these and other milestones in the meantime.
You may have heard that a good rule of thumb is to “pay yourself first”, which means to put money into your savings with each paycheque before you do anything else, almost treating it like another deduction. This is to help you save money before you have time to spend it, and you may want to set up auto-deposit or recurring payments to help you do this.
SavingOpens in a new window what you can on a regular basis can not only help with your planned goals, but also to pay for unexpected and unforeseen costs.
Prepare for the unexpected
It’s important once you start earning a steady stream of income to set some of this aside for unexpected expenses. You may have heard of the terms ‘rainy day fund’ or an ‘emergency fund’ to refer generally to savings, but ideally, these 2 funds are separate and contain money to help with different things.
This is money used to cover large emergencies that could impact your income, such as losing your job or becoming ill. It’s recommended to have between 3 to 6 months’ worth of savings to help cover your living expenses for this length of time.
Rainy day fund
This is normally smaller than your emergency fund and contains $500 - $1,000 that can be used for one-time purchases or smaller unexpected costs, like car or home repairs.
Aside from your savings, another thing to consider is your health. If you’re starting an entry-level position with a company, you may be enrolled in a benefits plan to cover health and dental treatments. If you’re starting your career as a freelancer or contractorOpens in a new window, you may not have any benefits at all. If you’re worried about the cost of healthcare and how you’d pay for medical bills, buying personal insuranceOpens in a new window can help bridge the gap between what’s covered by provincial or territorial health care and what you’ll need to pay for out-of-pocket.
Get started with investing
Another way to plan for the future financially is to start investing your money. You can pick the type of account you want to invest in, which might be a tax free savings account (TFSA),Opens in a new window registered retirement savings plan (RRSP)Opens in a new window or a non-registered account. Then, you select the type of investments you want to hold in that account. If you’re unsure about where to start, speaking with an advisor can help.
Should you save or invest?
If you’ve graduated with student loans, you may be unsure about whether to pay off student loans or start investing and saving.
The answer to this will depend on a number of factors, including how much you owe, the total of your monthly expenses, and how much disposable income you’re left with to save or pay-off debt. Whether you obtained your loan through the government or a bank could also play a part in your decision. For loans taken out through the government, there’s a 6-month grace periodOpens a new website in a new window - Opens in a new window during which no interest accrues, and no payments are due. After the 6 months is up, you’ll need to start repaying whether you’re earning income or not.
If you can, it’s a good idea to save even a little each month while you begin repaying your loans. Some employers may even offer a plan to help you pay down student debt while savingOpens in a new window - Opens in a new window for retirement. Contributing to a high-interest savings account can also help your money grow, even if you’re only able to make a small payment each month.
If you’ve got questions about planning over the longer term, an advisor may be able to help.
You can ask them questions about the right investing and savings options for your specific situation as you get started in your career.
You can also learn more about TFSAs, RRSPs, and getting started with investing.
The information provided is accurate to the best of our knowledge as of the date of publication. This information is general in nature, and is intended for educational purposes only.