When you start to earn, you should start to save

By Luisa D’Amato

CAMBRIDGE — Young people who are just starting their careers have a lot to think about in terms of finances, says Irene Vassalo, a financial consultant with Investors Group in Cambridge.

Anyone who is self-employed, or doesn’t get benefits, should be thinking about covering themselves with a benefits plan that includes financial protection if they’re hit with a disease like cancer, a stroke, a heart attack or disability from a car accident.

It may be hard for someone in his or her 20s to imagine being disabled, but it can happen to anyone. “They definitely need to look at protection,” said Vassalo.

People in their 20s are often getting married, buying their first home and having their first child — although not necessarily in that order

Vassalo believes in putting money away for a registered retirement savings plan — even if it’s only $25 a month — as soon as you start earning.

Maybe you can’t imagine yourself retiring, but you can keep that money away from government taxes. You can use it as a down payment on your first home, and you can use it as a long-term savings plan.

Also, you need a special fund — of at least two to three months’ income — for “emergencies and opportunities,” she says.

An emergency would be losing your job, becoming ill, your car breaking down, or your roof or furnace needing replacement. An opportunity is the happier prospect of buying a new car or piece of furniture, or going on a trip.

If you’re getting married, “watch the wedding expenses,” she says. “It doesn’t have to be a $50,000 wedding.”

In an ideal world, you should save 10 per cent of your income by putting it into registered retirement savings, put another 20 per cent into the emergency fund, and spend the remaining 70 per cent on your bills and daily needs.

When you get to buying your first home, you can lend yourself the money you put away into retirement savings plans for that down payment. You’ll have to pay yourself back over time.

It’s best to get your mortgage pre-approved before you find your dream home. Banks will look at how much income you have and how much debt.

Should you go for a larger mortgage because interest rates are low? What if they start to go up?

For that question, Vassalo recommends this strategy: Assume interest rates are double what they now are, then see if you can still afford the home.

Also, consider other costs: The biggest expenses in a home apart from the mortgage are property taxes, heat and utilities.

If you are considering renting out the home, or part of it, check the situation and be realistic. How is the vacancy rate in your community? How handy are you? How will you feel about being called in the middle of the night to fix the toilet or get rid of a mouse? What will happen if your tenant is badly behaved and doesn’t pay the rent?

“You have to be prepared for all circumstances,” says Vassalo.

If you’re starting a family, start a registered education savings plan immediately. The government matches 20 per cent of your contribution to a maximum of $400 a year. And you can use it to pay for all sorts of educational institutions, even a performing arts conservatory or correspondence courses.

Help your children become financially smart by training them to save part of their allowance or birthday money. Some should be saved for their education, and some should be saved for a short-term goal like buying a bicycle or video game system.