Simple ways to start building your net worth as a young professional

Written by Obie Odunukwe

Since joining the working class in 2013, I have been privileged to mentor a few ladies. They are usually in their last year of university and looking to start building their careers.

Last year, one of my mentees got a full-time job with a great company and was well on her way to planning her career and life after school. While witnessing this I started to recall the feelings I had as a new graduate straight out of school and starting a new, challenging and rewarding chapter of life. I vividly remember reading a ton of articles with titles similar to “how to be outstanding at your new job” “slay at that job with these 5 creative approach to work” “how not to lose your job after 90 days” etc. Going down that part was good, however, with hindsight here is one key thing I found missing from those articles – building your net worth as a new graduate / young professional.

Most people I have spoken to about this mentioned they started to think of this within two to five years of working (myself included). So without further ado here are simple ways to save and start building your net worth:

Registered Retirement Savings Plan (RRSP)

If your company offers one take advantage of it and begin deferring a portion of your income on a regular basis to the RRSP. Some employers may match your contribution up to a certain amount or percent thereby doubling your savings. If your current employer does not offer this, do not fret you can easily set up a plan with your bank. Because you are deferring a portion of your income for retirement, you receive tax relief as your contributions are deducted from your income each year.

RRSPs are great investment tools as they can be used to hold qualified investments such as mutual funds, GICs, savings bonds, equities etc. The money you make on your RRSP investments is not taxed as long as it stays in the plan. Additionally, under the federal government’s Home Buyers’ Plan, you can use up to $25,000 of your RRSP savings as a down payment on a home. However, note that the RRSP funds you plan to use must be on deposit for at least 90 days.

Watch out: There are tax penalties. If you withdraw from your RRSP savings plan before the age of 71, you will need to pay taxes on both investment earnings and your contributions. Always review your tax assessment from the Canada Revenue Agency (CRA) to know your RRSP contribution limit. Depending on the investments your RRSP holds the value may go down or up.

Payroll Savings Program – Canada Savings Bonds.

Through this program you can contribute to a savings program through automatic payroll deductions. To contribute to this program, you have to be a Canadian resident and your employer has to offer it. In this program, your contributions through direct payroll deduction are used to purchase Canadian Savings Bonds (CSBs). The great thing about these bonds is that they accrue interest on a daily basis until redemption. The interest rate for each series is determined by the Minister of Finance. One of my favourite features on this plan is the ease of redeeming funds. Redeemed funds are deposited within four business days. Click here to learn more on how to redeem funds.

Watch out: Although CSBs have a maturity of 3 years, if they are not redeemed by the owner the balance is automatically “rolled over” to the next available series once it reaches maturity. Contributions to this plan provide no tax relief. A T5 slip is issued to plan members if the amount of interest earned in the plan is equal to $50 or more.

Tax-Free Savings Account (TFSA)

Last but definitely not the least. I thought to mention this one as I am aware the Payroll Saving Program may not be available to everyone. I like TFSAs because they can be easily set up with your personal financial institution. Similar to RRSPs, TFSAs are flexible investment account that can be used to meet short-term or long-term goals. The cool factor for TFSAs is that investment income in a TFSA (whether it earns interest, dividends or capital gains) are not taxed, even when withdrawn. When setting up a TFSA make sure the money you put into the account is invested and not sitting idle. Most tend to invest funds in their TFSAs in mutual funds, while others may save for a period and then invest in stocks. In my opinion, neither approach is better than the other. A good way to start is to determine your risk tolerance, then build your plan around this.

Watch out: TFSAs have a contribution limit for each year, it is important to ensure you don’t go over this limit. The annual limits can be found on the CRA website.

If you have student loans ensure to factor in a consistent method of paying off the loan alongside the above. In no way is this the end all be all. However, I have found these to be practical ways for new graduates and young professionals to begin building net worth.

Obie moved to Canada in 2007 as an international student to study business at the University of Windsor. She has a passion for mentoring and community involvement and has been active as a mentor in the Ryerson Top 200 program and also volunteers with Partners for Mental Health. She currently lives and works in Toronto and loves traveling, reading, broadway and tennis.