iCount Youth Account
Top 5 Money Lessons
Be a money master with these financial essentials!
Reconcile or balance your accounts:
It used to be called “balancing your chequebook”, but chequebooks are slowly becoming a thing of the past and electronic banking by telephone and Internet are really the way things are done now.
An account reconciliation is simple: you need to take what you have, deduct what you are committed to, add in what you are expecting to receive and make sure that what you have as a total matches what your financial institution is telling you.
Items to consider include all automatic debit payments you have authorized, incoming wages, any service charges due, transfers to savings, RESPs and RRSPs, and even your income tax refund.
This type of reconciliation can be done every time you go online to your account, but it SHOULD be done once every month, as not all months have the same transactions. Anything that doesn’t add up can be identified quickly and rectified as soon as possible.
Budget Money:
This too can be a simple thing to do, once you are shown how. Every dollar you receive or earn adds up to your “income” and every dollar you MUST spend to live your life makes up your “expenses”.
Make a list of all the payments or commitments you have, including little things like magazine subscriptions and big items such as your car insurance or tuition. These commitments do not include going to the movies or a new faceplate for your cell phone, but DO include your planned savings and investment amounts, any debt payments, rent, cell phone charges and so on.
Now, add up the amount you have or expect to have for the month. DEDUCT your expenses from the previous list. Whatever is left makes up your discretionary spending, or, in other words, how much you have in your pocket for spending money. Because you have committed to your savings and investments, this money can truly be yours, but the beauty of budgeting is that if you have a large expense coming due in a couple of months, a budget can help you plan to put money aside for it so it doesn’t cripple your spending in the month it occurs.
To sum up: How much you have, minus how much you have promised to others (including your own savings) equals your spending money!
Identify Wants vs. Needs:
You may think that sounds simple, but many people, young and old, struggle with this identification.
Let’s say you take the bus to work, but it takes you 2 hours and 4 transfers to get there, even though it is a 25 minute drive. You may think you NEED to get a car, but since you are able to get to work without a car, even if it is difficult, this really makes the car a WANT.
Let’s say you do decide to buy a car to make travel easier. You WANT a nice car, but you do not NEED a fancy vehicle to achieve the goal. Whichever car you get, you will NEED gasoline for it though!
Food, shelter with heat and water, basic clothing items and a way to get to school or work are usually the sum total of an individual’s NEEDS.
Restaurant meals, a fancy home, electric blankets and an ice dispenser on the fridge, the latest fashions and a top-of-the-line vehicle would all come into the category of WANT.
There is no question some WANTS would make our lives easier or more pleasant, but if you have your NEEDS covered, then you are well able to continue in your life with a smile!
Establish Credit/Deal With Debt:
In a consumer-driven society, such as we have in North America, it is unfortunately very easy to establish credit. Once you have proven to credit-issuing agencies the ability to pay back the value of the credit, you will be able to make purchases and investments with borrowed funds.
Perhaps the title of this section should be changed to: Establish Responsible Use of Credit and Deal Responsibly With Debt.
Even if credit agencies offer you thousands of dollars of their money to use as you see fit, this does not mean you should use all credit at your disposal in a rush at the stores!
It can be very useful to take advantage of credit offerings…to purchase a vehicle, to pay for schooling, to finance the purchase of a large item that suddenly becomes necessary (fridge, washer/dryer, etc). This way, you can enjoy the item today and pay the amount off over time, thereby lessening a huge financial burden all at once. Of course, you pay interest on any money borrowed, so part of finding credit to use also involves researching the interest charges, finance charges, annual fees and more to determine which credit offering is most suited to what you need.
It is also a very good idea to begin to establish your own credit rating. There are agencies in Canada that track your use of credit and your record of payments, so that other lenders in future may see that you are either a good or bad risk. You NEVER want to be a bad risk, as this can affect many aspects of your future life. There are even some insurance companies that check your credit rating to see if they should insure your car or home! Making payments late, not making payments at all, or making only half payments all add up to poor credit ratings.
Use of credit also bears constant assessment of that WANT vs. NEED thing. Do you really NEED the loan or credit card? If yes, then always request the lowest amount of credit possible to cover the need. EXAMPLE: If the fridge is $1,100, and the credit card offers you $2,500, ask for $1,500 credit instead just to cover the purchase. Available credit is always tempting when you are faced with glamorous consumables at every turn.
One way to determine if the credit is really necessary: will the item be gone before the bill is paid? This eliminates using a credit card for consumables, such as groceries or pizza. Lines of Credit or Personal Loans are usually used for more tangible things, such as tuition or vehicles, so chances are the item will be worthy of the loan amount.
So, now you have used credit to obtain something.
Loans are fairly straightforward, as you are committed to a certain payment for a certain number of months to pay the loan back with interest in a set amount of time. Do not commit unless you are sure you can afford this payment, and ALWAYS ask if there are penalties to paying a loan in full before the scheduled term is up. If not, you can try to over-pay on your loan payment to eliminate the debt faster. If there are penalties, better sometimes to wait it out and follow the plan.
Credit cards always require a MINIMUM payment per month or billing cycle. This is usually a percentage of what you owe. You pay interest on anything left on the card for repeated months, so it is always a great idea to pay the full balance of your credit card. This looks good on your credit rating, but also saves you a ton of money on interest charges. If it is unavoidable, and a balance must remain on the card, hopefully you already asked for a card with a low interest rate. Regardless, PAY MORE THAN THE MINIMUM PAYMENT! Making only minimum payments and having interest tacked on every month prolongs a small debt for years and can start to affect your positive mental outlook as well as your bank balance!
Do you need it? Once you have it, can you manage it? If you are managing it, can you eliminate it? These three questions are key to the Responsible Establishment and Managing of Credit and Debt!
Save.
It’s not complicated, difficult or tricky. But it is the one thing that many young people have never been taught at home or in school. How to save money.
Your allowance comes to you on Friday, it is gone by Sunday! Your paycheque arrives in your account Thursday; you’re broke before the next payday.
One of your money lessons for life is how to budget and budgeting includes putting money aside for savings. Out of every amount you receive or earn, you should aim for a minimum of 10% to go to savings, but 25% is an excellent goal. This means that out of every $100 you have, about $25 should go to savings.
Think of it as a bill payment – to yourself. You can usually arrange to have a set amount transferred from your chequing account to a savings account automatically, but if your income is different amounts all the time, you must train yourself to make that transfer! If you start the savings habit at a fairly young age, you can enjoy the benefits of this skill (yes, it really is a skill) for your entire life.
Once you are in the habit of transferring money to savings, you need to have control over yourself not to use it for frivolous items. If you use all your spending money in a given week, then you are broke until you get paid again. Savings are not to be used to cover your trip to the mall!
Once you see how quickly savings can grow, you can then begin to make decisions on the best investment options for that savings. If 25% of your earnings are being saved, then you could keep 10% in an accessible account and put 15% into an RESP or RRSP, or lock it in to a GIC or other guaranteed investment.
You will be excited to see your savings grow when you put this skill to work!
