Personal Finance for Students

This is the ultimate guide to personal finance for Canadian students.

We’ll teach you how to budget, about student loans, filing your taxes, getting insurance and saving for your future.

Don’t know much about finance? Don’t worry, we start from scratch.

Our goal is to help Canadian students to better understand their money.

CHAPTER 1:

How to Budget

Budgeting is the start of any great personal finance journey.

Without a budget, it’s impossible to reliably save money and ensure that you can pay your bills.

In this chapter, you’ll learn why a budget is critical, how you can do it practically and why most standard budget advice doesn’t work for students!

We believe that budgeting empowers financial decision-making. Budgeting isn’t about restrictions, it’s about understanding your financial situation and making informed decisions.

Budgeting helps to prevent debt accumulation by tracking spending and prioritizing needs over wants, helping you avoid unnecessary debt.

Many students face fluctuating or unpredictable income. Combined with the financial demands of university, it makes budgeting a critical skill for all students to learn.


Step 1: Choose a Budgeting Tool

Choosing the right tool for you is vital. If your method doesn’t become a natural part of your life you’re more likely to give up and lose track of your finances.

For some, an automated digital tool like Mint is the perfect choice because it’s more hands-off and can be done on your phone. For others, Mint is overcomplicated and confusing. There’s nothing wrong with a simple Excel spreadsheet or even pen and paper.

Use the method that works for you. Whatever you can understand and commit to using consistently is the right tool.

Digital Tools

  • Pros: Automated tracking, categorization, and easy visualization of your financial situation.
  • Cons: May lack personalization for unique student income patterns.
  • Examples: Mint offers user-friendly budgeting and expenditure tracking, while YNAB emphasizes planning and forward-looking budgeting.

Manual Tracking

  • Pros: Fully customizable, promotes deeper engagement with your financial habits.
  • Cons: Time-consuming, requires consistent discipline.
  • Implementation: Use Excel for detailed spreadsheets or a dedicated notebook for a more tactile approach.

Step 2: Identify Your Income Sources

Firstly, you need to identify and segment your sources of income into income that you can depend on regularly, even if the amount is different, and income which is more seasonal or variable.

By doing this you’ll get an idea of how much your income varies from month to month.

Regular Income: Part-time jobs, internships, stipends, family contributions

Seasonal/Variable Income: Summer jobs, tutoring, freelance work, grants

Why does your income source matter?

  • The more regular your income, the simpler your budgeting because you can spend most of your monthly income, and save some if you’re able.
  • With variable income you’ll need to be more disciplined and save for future months when you’ll still have expenses, but no income.

With regular income it’s easier to budget. You know fairly precisely how much money you’ll have coming in each month, which gives you more confidence in how much you can afford to spend.

Seasonal or variable income is less predictable and so you need to be cautious with your budgeting to avoid overspending.

Even variable income can come in different shapes and sizes.

If you have a seasonal job that you work each summer, you can fairly reliably predict your income for the next year, allowing you to budget to get yourself through until the work season starts again.

But if you’re doing freelance work it’s challenging to predict when your next client will appear. In this example, you’d want to be extra cautious when budgeting because there’s more uncertainty about when your next paycheck will come in.

If you have seasonal income, like many students do, you should try to use annual budgeting.

Annual Budgeting

This budgeting method looks at the total income that you earn in the year and divides it by the 12-months – giving you the average income per month.

This number is the maximum you can possibly spend per month, leaving your bank account empty at the end of the 12-month period.

Of course, we ideally want to be saving some money. Therefore, you should aim to spend less than this average each month so that you have some extra savings each year.

Remember, with seasonal income your highly reliant on your savings and so it’s even more important to budget cautiously and spend less than you earn so that you can build up a safety net.


Step 3: Categorize Your Expenses

Now, it’s time to consider your expenses. The first step is to understand where you’re spending money currently and to categorize any future spending.

We recommend categorizing by ‘living expenses’ and ‘everything else’.

While some apps like Mint can do far more advanced categorization, it can be overwhelming and unhelpful for some people. Ultimately, you want to know what percentage of your income you’re spending on essential living costs relative to everything else.

  • Essentials: Rent, groceries, utilities, textbooks, tuition.
  • Non-Essentials: Eating out, entertainment, luxury items.

Step 4: Allocate Your Spending

Budgeting as a student is incredibly hard. You’re in a unique, temporary situation where typical budgeting advice isn’t particularly applicable. For example, most budgeting advice suggests that you try to spend 30% of your income on housing and save at least 10% each month. For most students that’s not realistic.

Not only are most universities based in large towns and cities where the cost of housing is higher, but your income might be relatively low and there’s less of an immediate need to build up long-term savings.

Instead, your budgeting must focus around ensuring that you can meet your expenses for the remainder of your studies and successfully graduate. Once you’ve found post-graduate employment and need to start paying back any student loans, standard budgeting advice becomes more applicable.

The 85/10/5 Student Budgeting Rule

The 85/10/5 student budgeting rule allows you to quickly figure out how much you should be spending each month. It’s a rough rule of thumb, and is primarily applicable to students.

Living expenses: 85% of your monthly after-tax income

Everything else: 10% of your monthly after-tax income

Savings: 5% of your monthly after-tax income

For most students, you should expect to spend 85% of your after-tax income on your core living expenses like housing, food, transit, utilities and debt payments. The remainder will be split between savings and discretionary spending for fun; meals out, drinks at a bar, entertainment subscriptions or a gym membership.

Ideally, you should look to save 5% each month for a rainy day fund, in case something breaks or you have an unexpected cost. But this might not be realistic, depending on your personal financial situation. Critically, you want to avoid spending beyond your means and taking on additional debt.

Example: Budgeting Scenario

Meet Maya: Maya is a university student living in Toronto. She works part-time and receives some financial support from her family.

Monthly Income:

  • Student loan (after tuition): $565
  • Part-time job: $800
  • Grant: $425
  • Total: $1,790

Monthly Expenses:

  • Living expenses (85% = $1,521): Shares an apartment near campus, buys groceries and travels via public transit.
  • Everything else (10% = $179): Enjoys a meal out 1-2 times per month and a new piece of clothing.
  • Savings (5% = $90): Puts a small amount into a savings account as a ‘rainy day’ fund.

Monthly Review: At the end of each month, Maya reviews her spending. She adjusts her budget based on actual expenses. For example, if she spends less on her core living expenses, she can add the extra to her savings or to spend on ‘everything else’.

Planning Ahead: Maya knows that during the summer, her income will increase due to a full-time internship. She plans to save a portion of that increased income to cover expenses for the upcoming semester.


Step 5: Review and Adjust Regularly

Budgeting is not something that you can do once and then forget about. It’s true that a lot of the work is done upfront – figuring out what your normal income is, categorizing expenses and knowing how much you can spend.

But each week or month you need to review your income and spending. Creating a habit of budgeting each week or month will give you better insight into your finances and prevent financial issues from creeping up on you.

The best thing is, the more aware you are of your budget, the easier it will be to stick to it!

Monthly Reviews

  • Purpose: To track actual spending against your budget and identify areas for adjustment.
  • Method: Set a regular time each month for this review.

Adapting to Changes

  • Real-Life Scenarios: If you receive extra income or incur unexpected expenses, adjust your budget accordingly.

Practical Tips for Successful Budgeting

  1. Be Realistic: Your budget should reflect your actual lifestyle, not an idealized version.
  2. Stay Informed: Regularly check for student discounts and deals.
  3. Minimize Debt: Use credit cards wisely and avoid unnecessary loans.
  4. Emergency Fund: Aim to build a small emergency fund for unexpected expenses.
  5. Financial Education: Continuously seek information on financial management and investment.

CHAPTER 2:

Debt Management

Most students use loans to pay tuition and so understanding debt is critical.

Debt can be the most harmful tool to your personal finances if you don’t use it correctly.

In this chapter, you’ll learn about common forms of debt, how it to use it correctly and how to get out of a debt spiral.

Managing debt effectively is crucial for university students, as it not only impacts their current financial status but also shapes their financial future. Understanding what debt is, its implications, and strategies to manage or eliminate it, is fundamental in building a sound financial foundation.

Debt is essentially money that you borrow and are obligated to pay back, often with added interest. As a student, you might encounter several types of debt:

  1. Student Loans: Funds borrowed for educational expenses, usually with favorable interest rates and repayment terms.
  2. Credit Cards: Useful for immediate expenses but can be extremely costly if balances are not paid promptly.
  3. Overdrafts: A facility allowing you to overdraw your account, typically accompanied by fees or high interest rates.

Unmanaged debt can have lasting repercussions:

  • Increased Long-Term Costs: Interest and fees can significantly inflate the amount you owe.
  • Credit Score Impact: Poor debt management can lower your credit score, hindering future borrowing capabilities.
  • Financial Stress: Excessive debt can lead to mental health issues and affect your academic and personal life.

Managing and Minimizing Student Debt

Knowing the terms of your student loans is crucial. This includes understanding the interest rates, repayment conditions, and grace periods after graduation. Strategize your repayment by focusing on loans with higher interest rates or consider consolidating your loans for better management.

In most cases, you won’t be required to start paying back your student loans until after you graduate. For current students, a student loan is often a good choice if you’re unable to self-fund your tuition through employment, grants, scholarships or help from family.

Generally, the interest rates and repayment terms for student loans are very generous when compared to mainstream loans.

While you’re studying you don’t need to worry about your student loan. So long as you’re budgeting correctly, as we discussed earlier, able to meet your expenses and save a little each month, you’re in a good spot. For most students it’s not going to be possible to meaningfully paydown your student loan while you’re still in school. Instead, your goal should be to graduate with the best grades possible and begin to make payments once you’ve got a graduate job.


Credit Card Usage

Credit cards are a tool for convenience, not a means to extend your budget. Always aim to pay off the entire balance each month to avoid accruing interest. If you do carry a balance, prioritize paying it down as quickly as possible.

The interest rates on credit cards are extremely high, typically above 20% per year. It’s critical that you pay off the balance at the end of each period to avoid damaging your credit score, and to prevent the interest from accumulating and becoming impossible for you to payoff.

Using credit cards isn’t a bad thing – it allows you to build up a credit score and earn perks and rewards while you spend. But you shouldn’t treat a credit card any different than your debit bank card. Only spend what you have, unless there is an extreme emergency, and payoff the balance at the end of every month.


Overdrafts

Use overdraft protection sparingly and be vigilant about your account balance to avoid unnecessary fees. If you find yourself regularly dipping into overdraft, it’s a sign to reassess your budget and spending habits.

An overdraft can be more affordable than a credit card, often with lower interest rates. So, if you’re in an emergency and need a short-term loan to bridge until your next paycheck, an overdraft might be a better option than your credit card. However, remember that the interest will still build-up quickly, and it’s critical that you pay an overdraft back ASAP.


Strategies for Getting Out of Debt

Once you’re in debt, getting out can be extremely challenging which is why it’s always best to budget proactively and avoid overspending.

Of course, life and emergencies happen and if you do find yourself in debt you can get out with a combination of budgeting, planning and professional advice.

When managing debt, one effective strategy particularly beneficial for university students is the Debt Avalanche method. This approach involves prioritizing your debts by their interest rates, paying off those with the highest rates first while maintaining minimum payments on others. Understanding and applying the Debt Avalanche method can be a game-changer in managing and reducing debt efficiently.


Debt Avalanche Method

The Debt Avalanche method is a debt-reduction strategy that focuses on paying down debts with the highest interest rates first. Under this method, you make the minimum payments on all your debts but allocate any extra available funds to the debt with the highest interest rate. Once that debt is fully paid off, you move on to the debt with the next highest interest rate, and so on.

The primary reason the Debt Avalanche method is effective lies in its potential to reduce the overall interest you pay over time. Debts with higher interest rates grow faster, so paying these off first limits the total interest accrued. By reducing the compounded growth of your highest-interest debt, you save money that would have otherwise been spent on interest.

By focusing on high-interest debts, the Avalanche method can shorten the time it takes to become debt-free. Although initially, the progress might seem slow, especially if the highest-interest debt has a large balance, the speed of debt reduction accelerates as each debt is cleared, similar to an avalanche.

University students often operate on limited budgets. The Debt Avalanche method allows for a more efficient use of available resources by reducing the amount spent on interest. This is especially crucial for students who may have limited income during their studies and need to minimize financial burdens as much as possible.

Many students have education loans, which can have varying interest rates. The Debt Avalanche method can be particularly effective in managing these loans, especially for those who may have private student loans or credit card debt with higher interest rates than federal student loans.

The Debt Avalanche method is a strategic and efficient approach for university students to manage and pay off their debts. By focusing on high-interest debts first, students can minimize the amount they pay in interest, making their limited funds go further. This method not only provides a practical solution to debt management during their university years but also lays the foundation for sound financial practices in their future.


Seeking Professional Advice

If you’re finding it difficult to manage your debts:

  • University Resources: Many universities offer financial counseling services to students.
  • Debt Counseling: Certified debt counselors can provide personalized advice and help you explore your options.

CHAPTER 3:

Savings and Emergency Funds

Building up savings and an emergency fund is the cornerstone of your financial future.

Understanding why to save, how to save and what to aim for can help your journey.

In this chapter, you’ll learn why savings are important, how to start an emergency fund, how much to save and what changes when you graduate.

Managing finances as a university student in Canada often means working with a limited budget and facing uncertain financial future. One critical aspect of financial planning during these years is the development of savings and, importantly, an emergency fund. For students nearing graduation, this becomes even more vital as they transition into the professional world and begin repaying student loans.

Savings, in the simplest terms, are funds you set aside for future use rather than spending immediately. As a student, saving might seem challenging due to limited income sources. However, even small amounts can accumulate over time, providing a financial buffer upon graduation, when new expenses and loan repayments often begin.

An emergency fund is a specific type of savings dedicated to unexpected expenses, such as sudden illness, urgent travel, or unforeseen academic costs. The primary purpose of this fund is to provide financial security against life’s unpredictable moments, reducing the need to resort to high-interest debt options like credit cards or payday loans.


Building Your Savings and Emergency Fund

As a student it can often be extremely challenging to build your savings and create an emergency fund. For some, it might be impossible right now. But eventually, your goal must be to start to save a little each month and build up a rainy day fund.

  1. Initial Steps: Begin by setting a realistic savings goal. As a student, this might be a modest amount, like $500 or $1,000, to start.
  2. Automate Savings: Use banking features to automate small, regular transfers into a savings account. Even $10 or $20 per week can grow your emergency fund without significantly impacting your daily budget.
  3. High-Interest Savings Account: Choose a savings account with a higher interest rate and low fees. Online banks often offer better rates than traditional banks.

With a goal in mind, a savings account and a system that allows you to automate your savings, you’re on the path to building up your emergency fund!

Some months you might be able to save more than others, and that’s normal. Automating your savings allows you to build savings into your budget, like any other financial expense. But when you’re building up your emergency fund, it’s recommended to push to save as much as possible.

This might mean massively reducing your discretionary spending for a couple of months. By skipping nights out with friends and other non-critical spending for just a couple of months you can help to build an emergency fund quicker. Then, you’ll be in a better financial spot, reducing your stress and allowing you to enjoy the future even more!

  1. Budget for Savings: Incorporate savings as a line item in your budget, just like any other expense. Prioritize it to ensure regular contributions.
  2. Adjust Spending Habits: Identify non-essential expenses you can reduce or eliminate. Redirecting even small amounts from discretionary spending to your savings can make a big difference.
  3. Suffer Now, Enjoy Later: Reducing your discretionary spending for a couple of months can allow you to build up your emergency fund quicker.
  4. Stress the Details: Often, much of our EXCESS spending is on the little things like utilities, coffee, alcohol, restaurants and taxis. It’s only a fraction of your total spend, but the majority of your non-critical expenses.

Now that you know how to start saving for your emergency fund, let’s talk about how much you need.

While this is different for everyone, there are some useful rules of thumb.

Aim for an emergency fund that covers 3-6 months of essential living expenses. As a student you should have lower fixed costs than most people, and so you can probably get away with an emergency fund equal to 3-months of living expenses.

Don’t be overwhelmed by the target amount. Focus on consistent, gradual savings. You’re not going to get there overnight, but remember that even having $100 saved up is a lot better than none.

Emergency expenses come in all sizes, and so having even a little bit saved up is helpful.


Transitioning from Student to Graduate

As graduation approaches, your financial focus should shift slightly. The impending need to start repaying student loans, possibly relocate for a job, or invest in professional attire makes having a robust emergency fund more important.

  1. Understand Your Loans: Familiarize yourself with the terms of your student loans, including when repayment begins and what the expected monthly payments will be.
  2. Savings vs. Loan Repayment: While aggressive loan repayment is beneficial to reduce interest costs, maintaining a balance where you continue to build your emergency fund is crucial. An emergency fund protects you against financial strains that could derail your repayment plan.

As a new graduate your finances are more important than ever. You’ll no longer be receiving student loans, grants, scholarships or other support income. So, you’ll need to rely more heavily on your employment income.

Ideally, you want to have a strong emergency fund built before you graduate. While we all hope to have a great career as soon as we graduate, many students aren’t able to get a graduate-level job immediately and finding part-time work can take time.

Having an emergency fund will give you more comfort while you look for seasonal or part-time work while you’re hunting for your ideal job. Here’s a few tips:

  1. Seasonal or Part-Time Work: Utilize breaks or part-time opportunities to boost your income, dedicating a portion of these earnings to your emergency fund.
  2. Tax Refunds and Grants: Apply any tax refunds, bursaries, or grants to your emergency fund when possible.
  3. Frugal Living: Embrace a frugal lifestyle, prioritizing needs over wants. This doesn’t mean living without enjoyment but finding cost-effective alternatives.
  4. Financial Education: Continually educate yourself about personal finance. Knowledge is a powerful tool in making informed financial decisions.

For Canadian university students, establishing a habit of saving and building an emergency fund is a fundamental aspect of financial well-being. Starting small, prioritizing savings, and gradually building an emergency fund can set the foundation for financial stability post-graduation. It’s about creating a safety net that allows you to navigate life’s uncertainties and the transition from student life to professional life with confidence and security.

CHAPTER 4:

Credit Cards and Credit Score

Credit is an incredible tool when used right, but dangerous if used incorrectly.

Most students use credit cards and in this chapter we’ll discuss how they work, the pro’s and con’s, how to pick a credit card and what a credit score is.

Navigating the world of credit can be daunting for Canadian university students, many of whom may be managing their finances independently for the first time. Understanding credit cards and credit scores is crucial, as they play a significant role in shaping your financial future.

A credit card is a financial tool issued by a bank or financial institution, allowing you to borrow funds up to a certain limit to pay for goods and services. The key is that you’re borrowing money and are expected to pay it back with interest if not repaid in full by a specified date. Credit cards offer:

  1. Convenience: Credit cards offer a convenient way to pay without carrying cash.
  2. Building Credit: Responsible use can help build your credit score.
  3. Rewards and Benefits: Many cards offer rewards like cashback, points, or travel miles.
  4. Emergency Resource: They can be a lifeline in financial emergencies.

But they certainly aren’t without their risks. Credit card debt is one of the leading causes of financial strain, because it’s so easy to use without realizing. Debt tends to spiral, because the interest adds to your existing balance, and then the future interest is calculated on that new higher total. So, avoiding credit card debt in the first place is critical.

  1. High-Interest Rates: Carrying a balance can lead to high-interest charges.
  2. Debt Accumulation: Misuse can lead to unmanageable debt.
  3. Credit Score Impact: Irresponsible usage can negatively affect your credit score.

If you’re going to use a credit card, always pay on time. If you pay at least the minimum payment by the due date you can avoid late fees and credit score damage. But that’s the absolute minimum. Ideally, you should pay off the entire balance each month to avoid interest charges – preventing the debt spiral from starting.


Choosing the Right Credit Card

Navigating the world of credit cards as a university student can be complex, especially when it’s your first foray into credit. Understanding your unique position – likely having low or no credit history, and limited income – is key in choosing a card that not only meets your needs but also aids in building your financial foundation.

Many banks offer credit cards specifically designed for students. These cards typically have lower credit limits and are more lenient with credit history requirements, making them an ideal starting point. They may also come with educational resources about credit and sometimes offer student-focused rewards or perks.

  • Look for lower interest options: While it’s best practice to pay off your credit card balance each month to avoid interest, as a student, there may be times when you can’t. A card with a lower interest rate can be beneficial in such scenarios. However, remember that even low interest adds up, and carrying a balance is not advisable.
  • Avoid annual fees: Minimizing costs is crucial when you’re managing a student budget. Cards with no annual fees are preferable as they reduce the burden of extra costs. Remember, the goal is to build credit and manage finances, not to accumulate fees.
  • Don’t worry about rewards: While rewards like cash back or travel points might sound appealing, they often require a level of spending that’s unrealistic for most students. Your primary use for a credit card at this stage is to build credit and manage emergency expenses, not to earn rewards. Therefore, a simple, no-frills card is typically more appropriate.

Consider starting with your existing bank. If you already have a savings or checking account with a bank, getting a credit card through the same institution can simplify your financial management. You’ll have one less login to remember and an easier time transferring funds between accounts.

In Canada, Visa and Mastercard are widely accepted. As a student, you want a card that you can use easily without worrying about acceptance issues. Visa slightly edges out in terms of global acceptance, which can be a consideration if you plan to travel or study abroad. Therefore, we recommend that most students look at Visa and Mastercard options.


What to Avoid

  • High Annual Fees: These are often not justified by the benefits they offer to students.
  • Chasing Rewards Over Practicality: Don’t be swayed by attractive rewards if the card doesn’t suit your basic needs.
  • Multiple Cards: It’s best to start with one card to manage your credit effectively and avoid potential debt accumulation.

The right credit card for a Canadian university student should be simple, cost-effective, and serve the primary purpose of building credit and managing occasional expenses. Prioritize cards with low interest, no annual fees, and consider sticking with familiar financial institutions. Rewards should be a lower priority at this stage, and accessibility, represented by widely accepted providers like Visa or Mastercard, is a practical choice. Remember, the goal is not just to spend but to learn and establish responsible credit habits that will benefit you long beyond your university years.


Automatic Credit Card Payments

As a Canadian university student managing a credit card for the first time, one of the most effective strategies to maintain a good credit score and avoid late fees is to set up automatic payments. This section will guide you through the benefits of automatic payments and how to set them up effectively.

  • Avoid Late Fees and Penalties: Late payments can result in unnecessary fees and penalties. Automatic payments ensure that you never miss a payment deadline.
  • Credit Score Maintenance: Payment history is a significant factor in your credit score calculation. Regular, on-time payments will help you build and maintain a good credit score, which is crucial for your financial future.
  • Set and Forget: Once set up, the payment process requires no manual intervention each month. This is particularly helpful for busy students who might forget due dates amidst their academic and social activities.
  • Reduces Stress: Knowing that your credit card bill will be paid automatically can reduce financial stress and help you focus on your studies.
  • Full or Minimum Payments: You can typically choose to pay the full balance or the minimum payment automatically. However, it’s strongly recommended to pay the full balance to avoid interest charges.

How to Set Up Automatic Payments

  1. Log into Your Online Banking or Credit Card Account: Access your account where your credit card is managed.
  2. Navigate to the Payments Section: Look for an option that says “Automatic Payments,” “Set Up Recurring Payments,” or something similar.
  3. Choose Your Payment Amount: Decide if you want to pay the minimum payment, the full balance, or a different specific amount each month.
  4. Select Your Payment Date: Align this with your income or other financial inflows. It’s usually best to choose a date shortly after your main source of income arrives.
  5. Link Your Bank Account: If it’s not already linked, you’ll need to provide details of the bank account from which payments will be withdrawn.
  6. Confirm and Activate: Review all details for accuracy, then confirm and activate the automatic payments.

Tips and Considerations

  • Regularly Review Statements: Even with automatic payments, regularly review your credit card statements to check for any fraudulent transactions or errors.
  • Ensure Sufficient Funds: Make sure your bank account has enough funds to cover your credit card payment to avoid overdraft fees.
  • Monitor Your Spending: Automatic payments shouldn’t be a reason to become complacent about spending. Keep a close eye on your credit card usage.

Your Credit Score

A credit score is a numerical representation of your creditworthiness, based on your credit history. In Canada, scores range from 300 to 900, with higher scores indicating better creditworthiness.

Why does your credit score matter? Your credit score impacts your:

  • Loan Qualification: A higher score improves chances of qualifying for loans, including mortgages.
  • Lower Interest Rates: Better scores often result in lower interest rates on loans and credit cards.
  • Renting and Employment: Some landlords and employers check credit scores as part of their evaluation.

Most students know that their credit score matters, but they might not know how they can improve it.

Even as a student, you can have an extremely good credit score. By building up your score when you’re young you’ll put yourself in a fantastic position to reduce the cost of your future borrowing, to qualify for loans that you want and to get the career and home that you dream of.

How can you improve your credit score? Follow these tips:

  • Timely Payments: Always pay your bills on time. Late payments can significantly harm your score.
  • Credit Utilization Ratio: Try to use less than 30% of your available credit limit.
  • Length of Credit History: Keep older accounts open, as they contribute to your credit history length.
  • Limit Inquiries: Too many credit inquiries in a short period can lower your score.

CHAPTER 5:

Filing Personal Taxes

Most students have never filed their own taxes before they start college and can be intimidated.

Don’t worry. Filing your own taxes is fairly simple for most students and can save you money.

In this chapter, we’ll teach you about how income tax works and give you some tips to help you to file your own taxes.

Canada’s tax system is progressive, meaning the rate of taxation increases as your income goes up. However, it’s important to understand how tax brackets work:

  • Marginal Tax Rates: Each tax bracket has a specific rate. Only the income earned within a bracket’s range is taxed at that rate.
  • Example: Suppose there are three tax brackets – 0% for income up to $12,000, 20% for income from $12,000 to $20,000 and 30% for income over $20,000. If your income is $35,000, the first $12,000 is not taxed, then $8,000 ($12,000 to $20,000) is taxed at 20% and the remaining $15,000 is taxed at 30%.

With this tax system, extra money that you earn above a tax bracket still increases your income, but the incremental dollars are taxed higher. This is one of the most misunderstood parts of tax. Many Canadians think that once they hit the top of a tax bracket they should stop working, because they think that if they go into the next tax bracket their entire income will be taxed higher.

This is NOT TRUE! Only the additional dollars above the tax bracket are taxed more, meaning that you still end up earning more money after tax, even if you’re in a higher tax bracket!


Residency and Tax Implications

For students studying in one province but residing in another (e.g., living with parents during summer), tax implications can be complex:

  • Primary Residence: Generally, you are considered a resident of the province where you have significant residential ties (e.g., a permanent home).
  • Studying Elsewhere: If you’re temporarily living in another province for school, you likely still file taxes as a resident of your home province.

Generally, if you’re living in the province of your university the entire year, for example by working in the province over summer and winter vacations, then you likely need to file taxes in that province.

If you’re studying in one province, but living with your family in another province for the rest of the year, you will likely be able to file taxes in the province where your family lives.


Reporting Income from Different Sources

As a student, your income might come from various sources. Here’s how to report them:

  • Employment Income: Use the T4 slip provided by your employer.
  • Scholarships, Grants, and Bursaries: Report amounts received, though many are tax-free for full-time students.
  • Investment Income: For interest, dividends, or capital gains, use the T5 slip or statements provided by the financial institution or brokerage. You can get these slips for logging into the website for these institutions, or by contacting their customer service.

Tax Deductions and Credits

  • Tuition Tax Credits: Claim tuition fees and, in some provinces, textbook costs.
  • Public Transit Credits: Some provinces offer credits for public transit expenses.
  • GST/HST Credits: Register for these credits to receive quarterly payments that help offset GST/HST paid on purchases.
  • Understanding Refunds: If more tax was withheld from your income than necessary, you’re entitled to a refund.
  • Benefits for Students: Look out for student-specific benefits like credits for loan interests.

Filing Your Own Taxes

If this is the first time you’ve filed your taxes, don’t worry. A lot of students are intimidated by tax season, but in Canada the system is relatively simple. Unless you have an unusual financial situation, filing your own taxes is easy and you don’t need to use a professional.

Keep Records: The first step is to make sure that you keep records of your income an eligible expenses through the year. Maintain all tax-related documents, like T4s, T5s, and receipts for eligible expenses. Ultimately, filing your taxes is primarily filling in information like these values.

Use a Good System: To make filing your taxes easier, use a user-friendly software that guides you with filling in the forms. We recommend WealthSimple because it’s free to use, has a very simple interface and can connect automatically with multiple financial institutions.

Seek Professional Help: If you find taxes overwhelming, consider consulting a tax professional or using reliable tax software. Generally, we recommend that most students file themselves because the cost of a tax professional is typically at least $300 and can be far more. Filing isn’t too complicated and with a little bit of research you can do it yourself in an afternoon.

CHAPTER 6:

Student Financing

Student financing can get complicated, particularly for students eligible for many forms of support.

In Canada, support is available from your province, the federal government and from private organizations.

In this chapter, you’ll learn about the types of student financing options, how they work and some tips for financing your studies.

Canadian university students have various financial aid options available to them including student loans, scholarships, grants, and subsidies.

Importantly, the student support is available at both the federal and the provincial level. Therefore, depending on which province you’re in the available support will differ. Generally, the assistance available is broadly similar, but provincial differences might mean that you get more or less support versus another province.


Student Loans

The Canada Student Financial Assistance Program (CSFA Program) offers loans to both full-time and part-time students to assist with their post-secondary education costs.

Loans are available to students in all provinces, but the application process and the source of funding is different.

  • In BC, MB, NB, NL, ON and SK: Students can apply through a single application via their province or territory of residence. For example, those in Ontario would apply for this through the Ontario Student Assistance Program (OSAP), which gives you access to both Ontario provincial and federal support.
  • In AB, NS and PEI: CSFA support is available alongside provincial aid and needs to be applied for seperately.
  • In Yukon: Canada Student Grants and Loans are available, as well as territorial grants.
  • In Nunavut, Northwest Territories and Quebec: Canada Student Grants and Loans are NOT available. These jurisdictions operate their own separate student aid packages.

Most loans need to be repaid after the completion of education​​. Typically, your repayment schedule is influenced by your income. Compared to non-student loans, this structure allows you to pay a more affordable amount each year, altering the number of years that you have to pay the loan to a level that is more manageable.

You must repay the loan. Failing to repay your student loan will damage your credit history, and can lead to a debt spiral. If you’re struggling with repayments, talk to your lender early and often to arrange a repayment plan that works for you.


Grants

Grants don’t need to be repaid, provided the requirements are met. Unlike loans, grants are money that is given to your for meeting certain pre-existing criteria, or for agreeing to meet some benchmark in the future. So long as you fulfil those requirements, the money is yours.

Clearly, grants are a fantastic way to help to fund your studies because they don’t need to be repaid. Grants are available for full-time, part-time, students with dependents, and students with disabilities​​.

There are more categories of grant than most students realize, and often students have not applied for all of the grants that they are eligible for.

Our recommendation is to maximize your income from grants before you look to take on additional student loans.


Scholarships

While grants are typically based on your background, financial need or other circumstances, scholarships are normally dependent on merit, field of study or other achievement. Scholarships are typically a reward, coming with recognition and honor. They do not need to be repaid, and can often be very significant financially.

Thousands of scholarships are available each year to Canadian students. While the largest and most popular scholarships are extremely competitive, there are thousands of other scholarships that you might be eligible for. Each year, many scholarships go unclaimed because no eligible candidates have applied. This may be because of the time and effort involved in the application process.

Note: scholarships awarded may impact your eligibility for further financial aid like grants or federal student loans. However, generally the fact that scholarships don’t need to be repaid makes it worthwhile to maximize your scholarships, even if you’re eligible for less loans, because you’ll owe less interest and still have roughly the same amount to spend each year.

Many of the grants available to Canadian students are offered by private companies. There have been limited reports of fraudulent scholarships never being paid, or with onerous terms. Keep this in mind and be careful when looking at alternative private scholarships.

CHAPTER 7:

Insurance

Insurance is probably the last thing that you think of when it comes to personal finance.

However, even students can benefit from understanding insurance and seeing what policies are right for you.

In this chapter, we’ll talk about saving money on insurance, health insurance, tenant insurance and travel insurance.

Most students probably never think about insurance. While many types of insurance are not critical for students, who are typically young, you might still need health, tenant, travel or vehicle insurance.

At its core, insurance is a contract, known as an insurance policy, between the insured (the individual or entity buying insurance) and the insurer (the insurance company providing the coverage). In exchange for premium payments, the insurer agrees to pay the insured a specified amount of money under specified conditions, should certain unforeseen events occur.

Before you buy any insurance, you should look to see if your university offers a group package for insurance. Sometimes a university is able to get a group policy that you can opt-in to, which can be cheaper than you would get by yourself. If this isn’t available, they may have specific discounts with certain providers that you can take advantage of to save money.

In the following sections we’ll look at the most common types of insurance for students.


Health insurance

While all Canadian citizens and permanent residents have access to free medical care, this is not comprehensive. For example, many provinces offer no dental or vision care support, meaning that you would need to pay out of pocket. Particularly relevant to students is mental health care, which although available through most provincial healthcare plans, can be poor quality or have extremely long waitlists.

For a certain subset of students, it might be worth considering private health insurance. Remember, look for student or university discounts with insurance providers to try to get the best deal possible.

For healthcare, depending on your school and which province it’s located in, you might be eligible for further healthcare support beyond medical. For example, certain schools provide mental health services for free to students, others offer discounted or free dental and vision care as well. If you have these available there is less need for you to buy health insurance.


Tenant insurance

Most students will rent at some point during their college career and you will often be required to obtain renters or tenant insurance. This insurance primarily covers your personal property and provides liability coverage for example against injuries sustained in your unit and the related medical costs.

Tenant insurance is often required in your rental agreement and even if it’s not, it’s recommended that you purchase it. It’s relatively cheap and protects you against problems that could have resulted in extreme financial burdens, particularly when you’re young.


Travel insurance

Many students travel abroad for vacation, co-op programs, internships or research. If you’re travelling outside of Canada, particularly to the US, travel insurance is highly recommended. The cost of healthcare or other liabilities can be extreme for travellers. Keep in mind, many credit cards offer some level of travel insurance. Look at your existing coverage before you decide whether to purchase a policy.

As a young university student that cost of travel insurance is typically extremely cheap when compared to the extreme costs that you could face in the worst case scenario. Therefore, it’s highly recommended that you purchase it when travelling outside of the country.

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