Grads need to start building financial security

Congratulations on graduating and entering the workforce. Now is the time to start building your financial security.

TUITION CREDITS

If you had claimed your tuition credits properly on your income tax returns while you were enrolled in school, you’d likely have carried forward significant tuition credit amounts.

The first year you earn a good salary is when you can make use of those tuition credit carryforwards. You can expect a large tax refund.

MANAGING DEBT

Use your tax refund to pay off the loan with the highest interest rate. Pay credit card balances in full before the monthly due date.

Don’t borrow to buy new furniture. Save cash and pay the full cost. Buy second-hand furniture if that is all you can afford without borrowing.

PAY YOURSELF FIRST

Make a habit of saving money — to buy a car, to buy a house, to go travelling or start a business, for example.

If you promise to save what is left over after paying expenses each month, you won’t save anything. Instead, set up a preauthorized monthly transfer of funds from your chequing account to your RRSP and TFSA. Start with an easily sustainable dollar amount. Increase your automatic savings amount whenever you receive a wage hike or after you pay off an instalment loan.

HOME BUYERS’ PLAN

Contributing to a Registered Retirement Savings Plan (RRSP) is usually the fastest way to save the down payment to buy your own home. Summer jobs you worked while going to school mean you accumulated RRSP contribution room for 2017, provided you filed tax returns.

You save tax when you claim RRSP contributions as a tax deduction. For example, suppose your 2017 income is $47,000. At that income level, a $1,000 RRSP deduction would save you about $335 tax (using Saskatchewan tax rates).

Accumulate the maximum $25,000 that you are allowed to withdraw under an RRSP Home Buyers’ Plan (HBP).

Fortunately, you don’t have to include the $25,000 HBP withdrawal in your income. The $25,000 can stay non-taxable by re-contributing the $25,000 to your RRSP in equal annual instalments over 15 years.

TAX-FREE SAVINGS

Besides an RRSP, open a TaxFree Savings Account (TFSA). For a $45,000 down payment for a home, aim to have a $20,000 TFSA plus a $25,000 RRSP.

The maximum TFSA deposit depends on your age. For example, if you turned 18 in 2013, you’d have $32,000 maximum TFSA contribution room.

GRADUATE RETENTION

For a graduate from a postsecondary course, Saskatchewan provides a rebate of up to $20,000 of tuition fees paid, when you live and work in Saskatchewan. The Graduate Retention Program (GRP) is available to graduates from courses across the country who move to Saskatchewan.

You receive your GRP rebate as a tax credit against provincial income tax owing. Until March 22, 2017, there used to be a Graduate Retention Program (GRP) First Home Plan (FHP) that let graduates borrow up to the amount of their unused GRP credits.

HOME BUYERS TAX CREDIT

You can claim the federal home buyers tax credit (HBTC), worth $750, on your income tax return. In Saskatchewan there is a FirstTime Homebuyers Tax Credit for another $1,100.

Unfortunately, if you had taken a GRP-FHP loan, you cannot also claim the Saskatchewan FirstTime Homebuyers Tax Credit.

If you promise to save what is left over after paying expenses, you won’t save anything. Instead, set up a pre-authorized monthly transfer of funds.

LOW-RISK INVESTMENTS

When you expect to withdraw funds from your savings for any kind of purpose within five years, you need to choose the safest investments.

Protect your principal. Shortterm bonds or high-interest savings accounts are examples of possible RRSP or TFSA investments that are suitable for someone with a very short-term savings goal.

Terry McBride, a member of Advocis, works with Raymond James Ltd. The views of the author do not necessarily reflect those of Raymond James Ltd. Information is from sources believed reliable but cannot be guaranteed. This is provided for information only. We recommend that clients seek independent advice from a professional adviser on tax-related matters. Securities offered through Raymond James Ltd., member of the Canadian Investor Protection Fund. Insurance services offered through Raymond James Financial Planning Ltd., not a member of the Canadian Investor Protection Fund.