5 Practical Tips for the Financially Challenged Professional

Does money go in one pocket and out the other? Here’s what you can do.

Unfortunately, becoming financially savvy doesn’t go hand-in-hand with earning a paycheck — even as a professional. You may have graduated with high distinction or navigated your career to the point of smooth sailing; but, if you haven’t taken steps to educate yourself on basic finances, you may be in trouble.

But alas, don't fear! Your future is not doomed— that is, if you take steps to bring your finances back on track.

Also, you are not alone. Many of us are not given practical financial advice in school. And if you’ve graduated with anything other than a commerce or economics degree, you may have entered adulthood without the basic skills to navigate your personal finances.

Managing your personal finances takes self-discipline, though. How well you do is dependent on you. You hold the key to your financial success. But, don’t let that be a challenge to make every decision financially prudent— you’ll end up ignoring the human element and stressing yourself out. Do the best you can and tailor to your personal goals.

Here are five practical tips for the road to financial success:

1. Open an e-Savings account.

This wouldn’t be your primary account but for saving emergency funds. The goal here is to put away cash for a rainy day and use it when that day comes, such as on urgent home and auto repairs, deaths in the family, or unemployment.

Set-up pre-authorized contributions to the account for every time you get paid and let it grow. There is no rule of thumb here, contribute what makes sense for your situation. Further, here’s why you should open an e-savings and not a typical savings account:

• Easy access to money: Your goal is to build emergency funds you can pull from during a time of need. If you put money in a savings account with limitations or restrictions, you may not be able to pull from it quickly or without penalty.
• No monthly fees: Because the account is virtual, you can only access it online; therefore, there’s not too much you can do outside transferring cash to and from your primary account (that’s all you need anyhow). Ergo, banks won’t charge you for it.
• Earn interest: Virtual accounts normally give you better interest rates than typical savings accounts. Yay, free money!

2. Limit your access to credit.

You may have noticed that banks look for any reason to loan you money. Don’t be tempted! Evaluate your situation — your short-term and long-term goals — and take only what you need. By limiting access to credit, you limit the amount you can potentially be in debt. If you're already in debt, this still applies — you won’t fall deeper into the hole. Consider the following:

• Only own one credit card: And consider a credit card with a good rewards program, either cash-back or travel reward points, so that you can benefit from your spending. Owning only one credit card means limiting yourself to the potential of multiple high-interest rate debt scenarios.
• Take the lowest credit offered: For example, if your Bank offers you $20,000, limit yourself to $5,000. Believe me, you don’t need more than that — I’ll explain in the next section.

3. Get a line of credit.

It may seem counterintuitive to recommend getting a credit line after saying limit your credit, but hear me out.

If you have a credit card, make sure you have a line of credit. You are human; there will be times when you buy something you can’t afford to pay for immediately or even after a couple of paychecks. Did you intend to keep the balance of that purchase on your credit card at 18-20% APR? Yikes, that interest payment is going to hurt.

Lines of credit have substantially lower interest rates compared to credit cards. If you can’t afford to pay off your credit card within the month, transfer the money over from your line of credit. Never leave a balance on your card.

4. Opt into your corporate savings plans.

You may or may not be aware that your organization has vehicles available to support employee savings. Ask around. And, opt into all of them— maximize your savings potential.

The most popular will be a retirement savings plan whereby your organization will match your contribution up to a percentage point and annual limit. Once you’ve registered, your contributions can be pulled directly from your paycheck, so you won’t need to coordinate the savings yourself.

Also, not all corporate savings plans look the same — they might not even be savings plans per se. Nonetheless, they can save you money. For example, I worked for a company that could loan you more than half of your total annual compensation to buy their stock at an interest rate less than the total annual dividend. You literally made money to hold the stock — even if it didn't go up.

Your company may even offer free loans for specific purposes, like purchasing computers and other tech items. If you are going to borrow money to purchase a pricey item — research your best loan option, it may lie within your corporate incentives.

5. Invest your money.

Putting aside cash in a savings account will only take you so far in terms of building wealth. Yes, it will put you on track to healthy personal finances, but you will want to consider other investment vehicles to basic savings accounts to generate more wealth. Consider any of the following:

• Mutual Funds are professionally-managed investment funds that pool money from several investors to purchase securities. They are known for having high management fees. However, if you are limited in your knowledge of investing and prefer to be hands-off, investing in Mutual Funds can make you money that you would not have made otherwise (even with the fees).
• ETFs or Exchange Traded Funds are a basket of securities traded on the stock market. They are similar to Mutual Funds; however, they are largely unmanaged. Meaning, you would need to keep a close eye on the ETF and evaluate if it’s meeting your investment objectives. ETFs are often preferred over individual stocks because owning a basket of securities creates diversification and spreads the risk of major price drops.
• Individual Stocks are ownership stakes within a particular company. You can open a self-directed investment account to pick and choose individual stocks to invest in. Stocks can be risky, however, and usually, sufficient research is required before making a purchase. That’s not to say that people don’t buy stocks on speculation — sometimes it works out, and sometimes it doesn’t — it’s a bit like gambling. Therefore, know your risks!

*Bonus tip* — you can avoid tax on your earnings by sheltering your investments within a tax-free savings account.

While these are practical tips, as with any financial decision-making, please be sure to do your own due diligence.

Disclaimer: I’m not a financial advisor, nor am I trained in financial planning. These are tips that worked for me personally.