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Financial planning 101

True or false: Financial planning is only for adults with lots of money.

False! Financial planning is for everyone. That’s because it’s about making sure you have enough money to do the things you want to do—and for many of you, that means attending college or university.

It’s depressing but true—the average student is $26,000 in debt after graduation from a four-year program. But by following these four financial-planning steps, you can calculate your total costs, figure out how to pay them, and develop a budget so you won’t have much debt after graduation.

1. Cost accounting
Your first step is to account for all your possible costs. Some costs are obvious and fixed, meaning you can’t change them. Tuition is one of those. Other costs, like accommodations, are variable—meaning they vary dramatically depending on your choices. Some costs are hidden, meaning you may not think of them until they occur.

Calculating Costs
Contact the college or university you wish to attend and ask them about tuition and living costs. Ask recent graduates or current students about their average budget, so you can plan accordingly.

Cost checklist
In one year, your fixed costs might include:
Tuition
Books
Technology
Program fees
Materials
Travel and moving costs

Your variable costs will be:
Housing
Food
Clothes
Personal items
Entertainment
Travel home

Calculate your grand total by multiplying your yearly total by the number of years in your program.

2. Closing the gap
Subtract your costs from your resources. If you’re in the positive, you’re on your way to a debt-free education. If you’re in the negative, you can close the gap by reducing your variable costs and finding ways to increase your resources.

Examine how you can reduce your variable costs. Can you change your accommodations, perhaps live off campus or with relatives? Can you reduce your entertainment costs or number of trips home? Can you give up certain lifestyle products to reduce your variable costs?

Also review your resources to see how you can increase your funds. If you have several years left before university or college, can your parents put away more money? Can you find a job or a higher paying job in the summer? Do you qualify for scholarships or bursaries?

3. Resource roundup
Now that you have an idea of your costs, it’s time to figure out how you’ll pay them. Try these possible sources:
RESPs and other savings strategies
Your savings
Scholarships, bursaries and loans

RESPs and family contributions
The first people to ask for college/university money are your parents and guardians. Ask them if they have set any money aside for your postsecondary education. For the past several years, the federal government has been giving parents $400 per year for $2,000 deposited into a Registered Education Savings Plan or RESP. There are also other types of savings plans besides RESPs, such as trusts. If your parents have started saving, ask them to contact their financial planner to determine how much the fund will be worth when you start college or university.

Bursaries, scholarships and loans
Check out any possible scholarships and bursaries. Universities, corporations and organizations offer these types of awards to students who have good marks and who demonstrate good citizenship.

TIP: If you have two or three years left until you start university or college, scope out the requirements to get a scholarship, and start acquiring the prerequisites to qualify. If you aren’t able to get a bursary or scholarship, research what government loans are available.

Your savings
Have you worked while in school and saved money? How much have you earned? If you work in the next summers or currently have a part-time job, how much will you generate?

Develop a budget 
Budgeting can help you reduce your costs and increase your resources between now and college or university.

Budgeting is easy to say but tough to do. There’s a lot of pressure to buy the right things and to look the right way. But if a postsecondary education is your goal, and you don’t want to pay for it the rest of your life, consider budgeting.

Track your spending
You can track by using accounting software.

4. Pay yourself first
Get in the habit of taking your savings right off the top. If you have a part-time job or an allowance, set aside your savings and pretend you never had it. You’ll be amazed how it adds up.

Pre-shop
Before you buy anything, ask yourself if you really need the item. If you can find it cheaper elsewhere, wait for it to be on sale or substitute it for something else.

Getting your finances in order means getting a handle on all your costs; finding out how much you have to pay; reducing variable costs; increasing resources; and saving more than you spend.

A postsecondary education can cost a lot, but it’s the best investment you’ll make.

This article was provided by the Financial Planners Standards Council (FPSC), a nonprofit organization. Check out their Learning Centre at www.cfp-ca.org for more information.

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