Six ways young women can develop the financial skills they need

Empowering young women to acquire financial literacy can positively shape their relationship with money and their confidence in their ability to manage it.

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I recently participated in a one-on-one coaching session with FuturFund, a non-profit, student-run organization that gives young women the financial knowledge they need to step into a world of financial decisions.

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As I mentored each of the young women, I thought about what I would say to my 20 year old self about money if I could go back in time. There are many ways a young woman can learn financial literacy skills to earn and stay in control of her money. Here are six.

Establish a budget : Many young people start earning an income in high school or college and it is important to make sure that your expenses do not exceed your income. You’ll need to track your daily expenses – as the purchase of lunch and coffee each day adds up over the year – and redirect some of those funds to a savings program. A well-designed budget lets you know how much you need to set aside each month for basic expenses and savings, as well as lifestyle expenses.

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Most banks offer online budgeting tools that analyze your monthly cash flow and categorize your expenses to show you exactly where your money is going. It’s a smart, easy way to help you make smarter financial decisions.

Create a saving habit : A good place to start is to allocate 10% of your paycheck to a savings program. You can also set up a pre-authorized contribution each month. The younger you are, the more time your savings and investments have to grow. Savings can also serve as an emergency fund, which comes in handy when unexpected things happen.

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Understanding credit : A credit card can be a double-edged sword. It’s a valuable tool in building your credit score, but it can create problems if you don’t pay it off on time. Once you qualify for your first student credit card, remember to always pay off your balance in full when the bill arrives. This creates a healthy credit history.

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You should also research credit card fees, limits, and interest rates as they will help you develop good paying habits. By the time you graduate from college you will find that your credit rating is amazing which can help you get a loan / mortgage from the bank.

Control taxes : Always keep in mind that your income is not solely yours. You need to understand how taxes work before you get your first paycheck or start investing, because after-tax money is your real income. You should use your actual income to supplement your budget and see if it meets your financial obligations.

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The two main sources of income for most young people are employment income and investment income. Your employment income is taxed at your marginal tax rate and your investment income is taxed according to the type of investment. Interest is taxed at your marginal tax rate, dividends are taxed at lower rates than any other type of investment, and only 50% of your capital gains are taxed at your marginal tax rate.

Develop a basic knowledge of the different investment vehicles : I’ve seen a lot of young people, and even mature adults, throughout my career, who have no idea of ​​the differences between registered and unregistered accounts. It’s important to understand the tax benefits associated with registered accounts, so that you don’t miss out on their benefits.

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Once you turn 18, a Tax Free Savings Account (TFSA) is a great way to build your savings. You can save tax-free for any purpose like a car, vacation, house, etc. Registered Retirement Savings Plans (RRSPs) can be used as part of your savings to buy your first home through the Home Buyers’ Plan and save for retirement. For both accounts, kids can start with small, constant amounts, which can grow into a large amount when you need the money.

Become an investor : If you have good budget habits, have savings, and aren’t drowning in debt, now is the time to put your money to work by investing. You are never too young to invest. Time is on your side. The money you invest now has more time to grow before you need it. Plus, the magic of compound interest can help you grow your money even faster. Contact a financial planner and discuss your goals and risk tolerance. They will provide you with the most suitable investment options.

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Financial literacy is an ongoing endeavor that lasts a lifetime. Empowering young women to acquire financial literacy can positively shape their relationship with money and, more importantly, their confidence in their ability to manage it. It will relieve a lot of pressure and give them a more secure future.

Shuling Sun is Investment Advisor at RBC Dominion Securities, RBC Wealth Management
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Dwight E. Schulz