Top 4 Tips for Starting Down the Path to Financial Freedom

May 27, 2022

My oldest child turned 19 this month. I am not sure how this happened as I have not aged a day since he was born. Queue laughter from the audience!

All joking aside, while my son is still very much “a dependent”, his eventual flight from the nest has me thinking a lot lately about his future. More specifically, preparing him for the days when his post-secondary adventures are over and the real “adulting” begins. These thoughts have been highlighted by several meetings I’ve had recently with young professionals beginning their careers who want to start out on a solid financial footing. Coming of age in Covid and being raised by the generation with the highest consumer debt in history, these young people are keenly aware of the need to know better to do better.

In tribute to these inspiring youth, I have put together my top 4 tips for starting down the path to financial freedom.

Seek Cashflow Clarity

Depending on where you lived (at home or on your own) and how your education was funded (student loan or student employment), you may or may not have experience paying bills and managing cashflow. Regardless, once you enter the workforce, it’s imperative that you get clear on what you have coming in, what you have going out and what you want to do with any excess. Once you have clarity on your cashflow numbers, the real power comes in setting short and long term cashflow goals. For example, how soon would you like to purchase a new car or have your student loans paid off. This Cashflow Calculator is a great tool to help you not only gather the data but also to set those all-important intentions. It is not just the cash but what you decide you’d like to do with it that will keep you moving forward.

Lock in Healthcare Access

You likely have been covered by either a student health plan or been listed as a dependent on your parents’ health plan until now. Once you are no longer a student or a dependent, you will have to find your own coverage. If you are fortunate to be in good health, you may not think this is a priority. However, getting a basic plan before you need the coverage ensures that you will never be denied it later. Starter plans for young people are very affordable. On the other hand, a health diagnosis can be financially devastating.

You are also graduating in the gig economy where you are not likely to consistently have access to healthcare via an employer plan. Taking the reins on coverage yourself eliminates any future dependence on an employer and helps ensure your options remain wide open. My favorite innovation in locking in access to health care is Assured Access. This product available exclusively from Medavie Blue Cross allows you to start and stop benefits based on your work situation as often as you like without having to medically qualify each time. Next to clarity, flexibility is key to a solid financial future.

Start a TFSA

A TFSA is a great way to dip your toe in the pool of investing. This often-understood savings vehicle allows you to contribute $7000 per year into a wide variety of investment options, enjoying tax free growth and liquidity. The contributions you make and any investment earnings you achieve can be easily accessed at anytime tax free. Depending on how you chose to invest within the TFSA, it can be appropriate for both short term emergency savings or longer term contingency planning. The downside? Unlike an RRSP, contributions to a TFSA won’t provide you with an immediate income deduction. However, your RRSP room will still be there when your career has taken off and your higher income means that tax break will be more meaningful. This calculator compares lump-sum deposits using TFSAs and RRSPs and will help you decide which is best for your situation.

Begin Building Credit

Now that you are earning an income, you will likely want to start making some significant purchases. Homes, vehicles, and recreational toys may be just around the corner. Financing these purchases will require you to not only have the down payment and cashflow to support the purchase, but it will also require finding a lender that is willing to work with you. If you have no history of paying others back, how will they know you are going to pay them back? Getting a credit card with a small limit, having your cell phone and other bills in your name, and demonstrating that you pay them off in full and on time every month will go a long way towards building your credit score. Free apps like Credit Karma will also give you an idea of where your credit score is today and provide tips to increase that score going forward. They also offer regular updates on your progress. With clarity comes confidence…and that can make all the difference.

I can’t stop the fact that my children are growing up and that they won’t always need their old Mom. But when they are ready to leave the nest, I can ensure they have all the tips and tools they need to realize all their dreams and plans.