4 Bank Accounts Every Student Needs to Get on Track
Don’t be fooled; I am no genius when it comes to money. I love spending it on food, and most of my monthly income goes to bills like rent, utilities, phone bill, and tuition.
However, since staying at home due to Covid-19, I have found that I can budget and control my spending. I’ve also taken the time to talk to my friend, who happens to be a financial advisor. I told them about my future dreams (buying a house with a yard to have dogs), my current spending, and my income.
For me, the advice they had was to create a realistic budget of what I could afford to spend and save. Then, create labeled accounts for my spending habits and goals to hold myself accountable and remind myself why the money is going into or out of those accounts.
So here they are, the 4 accounts I believe everyone needs to get on track towards their financial goals:
Chequing
I labeled this one my Daily Spending Account as it holds the money I can spend since my paycheque is deposited here and my automated withdrawals for bills and other accounts occur. Many banks have student banking options where there are little to no transaction fees or yearly service payments.
- Hot Tip: It’s helpful to download your bank’s app onto your phone so you can easily access information about your finances. And if you have any money left over at the end of the month, feel free to move it into your savings and start fresh every month.
Emergency Fund/ Savings
Having an emergency savings fund is a great cushion to have in case of an emergency. If you can find a bank that offers a high-interest savings account, this is a great place to store 4-6 months worth of your monthly budget to cover costs should you be unable to work for some reason. This fund may take some time to build, but it was personally super helpful when I lost my job at the beginning of the pandemic and there was a period where I wasn’t able to access CERB or EI.
Tax-Free Savings Account (TFSA)
How a TFSA works is you pay taxes on the money you put into the account via income tax but don’t have to pay taxes on the interest you earn by keeping the money in this account. It’s great for a short-term goal like a post-grad trip or a down payment on a car or house.
- Hot Tip: There are tonnes of financial apps like Wealthsimple that make it easy to start, fund, and track your TFSA. (This is not sponsored, but Wealthsimple, I’ll be here if you want to collaborate)
Registered Retirement Savings Plan (RRSP)
Retirement may seem far into the future, but the sooner you can start saving, the better! And that’s the trick with long-term savings; as young students, we have a lot of time for the small amount of money we have now to compound interest and can invest in riskier stocks. For example, if I put in $20 every month for the next 30 years and the account has an interest rate of 1.25%, you will have about $9,000. Of that, $1,500 was earned on interest. An RRSP can also be started using a financial app or talk to a financial advisor!
- Hot Tip: Automate your bank accounts! At the beginning of every month, my car insurance, phone bill, rent payments and the transfer of money into my TFSA and RRSP are all done automatically by my bank and financial app so when I look at my Daily Spending Account, I can see what is left to spend for the rest of the month.
As students, we don’t have a lot of money and not all of these accounts will be possible to fund.
But start with a realistic budget that allows you to work towards growing an Emergency Savings Fund. And once that is funded, it can sit in your savings and monthly funding can instead go towards your short-term and long-term goals.
Remember, even $20 a month will help in the long run towards your financial goals!