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Fund Library Q&A
Your questions about financial planning, investments, and portfolio management answered by an industry expert

By Robyn K. Thompson  | Friday, June 01, 2018

Q – I’m graduating from university this month, but I’ve never really had to deal with personal financial matters in any meaningful way. Mostly, it’s all been handled by my parents, scholarships, and student loans. Do you have any advice for new grads on how to handle their finances? – Indra S., Toronto, Ontario

A – Here’s a commencement speech you won’t hear at most commencements: The most important lesson most grads have to learn after leaving school is to live within your means and not spend more than you earn. You do not need to make a six-figure salary to be financially successful, but you do need to be smart about spending and to set out a diligent savings goal and investment plan.

For graduates, the single most important short-term financial objective is to pay down any existing student debt as fast as possible. Debt is insidious, and even though it might be a student loan, it is still a financial obligation, and it still racks up compound interest (that’s interest on interest), which you must pay.

And pay down any high interest debt (like credit cards) as soon as possible. Your objective should be a zero balance on your credit cards. There’s no point trying to generate an annual investment return of 7% to 9% if your credit card interest is 25%.

Once you’ve taken care of the debt, start a disciplined savings plan. Target a certain amount to put aside every month as savings. Some advisers say you should save 10% of your gross income, but most recent grads won’t be able to do that. So save whatever you can, even if it’s only a few bucks a week. If the money is invested tax-efficiently, you’ll be surprised at how quickly it adds up.

The more years you have to invest, the more manageable your plan becomes. This ties in with the power of compounding. This is the principle that any earnings from an asset will in turn generate their own earnings. Compounding allows your original investment amount to grow faster when earnings are reinvested than when earnings are paid out.

TFSA investment power

Probably the best, most tax-efficient investment vehicle that a new grad can start up is a Tax-Free Savings Account (TFSA). Use it to invest in some high-quality mutual funds or exchange-traded funds (ETFs). You don’t need a fortune to start with as many mutual funds typically let you make an initial investment for as little as $500 or less. ETFs trade on stock exchanges, so your minimum investment may have to be considerably more, and you’ll also pay brokerage fees.

In any case, your money grows inside the TFSA tax-free, and you can withdraw your funds tax-free. TFSAs are great for shorter-term savings goals.

If you haven’t opened a TFSA, and you’re eligible to do so now, you may in 2018 immediately contribute your entire accumulated contribution room since 2009 – that’s $57,500. And next year, you’ll be able to add another $5,500. And so on. And so on. Most grads won’t be able to do this (unless they have some exceptionally generous relatives!). While there is an annual maximum limit, there is no minimum. So start by contributing what you can.

Keep in mind, though, that TFSA rules and regulations can get complicated. First, you can hold many different types of assets in a TFSA: cash, stocks listed on designated exchanges, mutual funds and ETFS, bonds, GICs, and certain shares of small business corporations. Shares traded “over-the-counter” on dealer networks or exchanges are not qualified TFSA investments.

Remember, too, that as in other registered plans, various investment tax benefits won’t apply, such as preferred tax rates on dividends and capital gains, as well as the ability to use capital losses to offset gains.

And when considering a TFSA, avoid using it as a sort of personal ATM. If you lose track of your contributions, withdrawals, and re-contributions within a year, you may find you’ve overcontributed, and you’ll be subject to some rather stiff penalties by the Canada Revenue Agency.

To help make sense of the financial world, which may be a new experience for many grads, speak to a qualified financial planner. If the grads’ parents have a good long-term relationship with a professional advisor, chances are they’d be happy to give some advice to the new grad as well. Otherwise, check with your bank – most have qualified planners on staff.

Robyn Thompson, CFP, CIM, FCSI, is the founder of Castlemark Wealth Management, a boutique financial advisory firm specializing in wealth management for high net worth individuals and families. She is also listed as a MoneySense Approved Financial Advisor. Contact her directly by phone at 416-828-7159, or by email at for a confidential planning consultation.

Notes and Disclaimer

© 2018 by the Fund Library. All rights reserved. Reproduction in whole or in part by any means without prior written permission is prohibited.

The foregoing is for general information purposes only and is the opinion of the writer. Securities mentioned are illustrative only and carry risk of loss. No guarantee of investment performance is made or implied. It is not intended to provide specific personalized advice including, without limitation, investment, financial, legal, accounting or tax advice. Please contact the author to discuss your particular circumstances.

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