n order for this post to make sense, I need to give you a little financial back story about myself.
The way I was
Like many (most?) of us, when I was a teenager and young adult, I was pretty irresponsible with my money. I spent everything I earned, never even considered saving anything, and accumulated some debt. Not a huge amount of debt, but certainly a few thousand on credit cards. That might not sound like a lot, but carrying any balance on credit cards is bad news, because of the astronomically high interest rates (future post on that topic).
So I’m 24 years old, newly married, carrying a few thousand on my Visa/MasterCard, but also holding a few thousand in the bank from wedding gifts. That gift money, of course, belonged to my handsome new husband and I, and for some bizarre reason, we didn’t’ feel like paying off my debt was the best use of that money.
At this point in our lives, we were renting an apartment, and taking the bus. No house, no car, so savings. When I look back on that time, I joke that we basically only had each other.
And I don’t know what might have happened. We might have continued living slightly above our means for the rest of our lives. We might never have gotten ahead. But then something pretty pivotal to my financial journey happened: I got a job at a bank.
How banking opened my eyes
I started working as a Client Service Representative in one of Canada’s “Big 5” banks in 2010, and I’m telling you, it was a wake-up call. In that job, I saw the worst-case scenarios – people who had great jobs and earned very healthy salaries, but were buried in debt, literally trapped. I saw people approaching old age, facing the prospect of retiring with no savings. I saw people dealing with the ramifications of financial mistakes that kept coming back to haunt them. It was scary!
But I also saw the best-case scenarios. I saw young people like me who earned modest incomes actually succeeding at saving. I saw them building RSPs, contributing to TFSAs, and buying their first homes. How could they possibly afford to do things like that?
Well, for starters, they didn’t buy things they couldn’t afford. They somehow did this crazy thing where they not only lived within their means, but lived below it. They sacrificed some lifestyle perks that I was mindlessly enjoying so that they could start putting their money to work towards their long-term goals.
Related to not buying things they couldn’t afford, they never carried a credit card balance. Never. Why? Because that costs money – a lot of money, and these people knew better than to waste their hard-earned money.
They also committed to regular, modest savings. Amounts that most of us could afford. Maybe only $25 or $50 a pay cheque. It doesn’t sound like a lot, and they never missed it from their cheques, because they set-up automatic transfers. That’s right: on pay-day, that $25 would automatically move from their primary chequing account into a savings or investment account. In the banking world, we called that paying yourself first.
The beginnings of change
So I was starting to get a sense of what I wanted my financial picture to look like, and I started talking to my husband about our financial goals. We wanted to be homeowners, that was our immediate goal.
Through my work in banking, I learned about the First Time Home Buyers Plan. Basically, it’s a way for Canadians to take an interest-free loan from their RSPs to fund the down payment for their first home (learn more here). Of course, we didn’t have any RSPs. But we did have a few thousand in cash from wedding gifts. My husband also had some savings he had been hanging on to since before we were together. So we decided to take our gift money, and his savings, and put it into RSPs, so we could take advantage of the First Time Home Buyer’s Plan when it came time to buy our house.
I also set up one of those automatic transfers to my RSP. I can’t remember how much it was now, but I’m thinking $25 biweekly. Very manageable.
Leveraging banking products
Since starting my new career in banking, I had learned about all sorts of other financial products that could help people reach their goals. One such product is a credit line, or line of credit. Credit lines work similarly to credit cards, except the interest rates are typically much lower, and there’s usually no physical card. When I first started working at the bank, I applied for a credit line, planning to use it to pay my credit cards off. Unfortunately, my application was denied. I had a history of relying on credit, and I had no savings – how could I be expected to be responsible with a credit line?
But, once I had a few thousand in an RSP, and a regular contribution set up, my financial picture changed. My net worth improved and I demonstrated I could save. So a few months later, when I applied for the credit line a second time, my application was approved. Because I worked for the bank, I was entitled to an excellent employee rate, which was much lower than I would have qualified for on my own. I promptly used the credit line to pay my credit cards down to a zero balance. I vowed I would never again pay a cent of interest on them. And I never did.
I also set up a regular, bi-weekly transfer to my credit line. I knew that if I only made the minimum payments, I would never get out of debt. Since my interest rate was so much lower on the credit line than it had been on the credit cards, the amount I could afford to pay on it went much further. I started to see the balance shrink.
Achieving a major goal
The next year, my grandmother was ready to sell her townhouse and downsize to a one-level apartment. My husband and I decided to buy her home. It was small but well-kept, and it was within our price range. We had enough in our RSPs to cover the minimum required down payment, and we were extremely grateful to my grandmother for selling to us for substantially less than she could have gotten on the market. She could do that because she had been frugal her whole life, and was in a good financial place. She also has the most generous heart (love you, Gram).
At 25, married for just over a year, my financial situation had pretty much done a 180. My credit card debt was gone, never to return again (knock on wood). I was paying my credit line balance regularly, and making real progress. We had achieved our dream of becoming home owners. Because we purchased a house we could afford, the mortgage payments were quite manageable. Around that time I also purchased my first car, a used Toyota Corolla (future post on why I only buy used cars). I was paying back the money I borrowed from my RSP, and adding a little extra. Things were on track.
Today I’m 31, and I consider myself financially savvy. While I’m far from “rich”, I know how to make my money work for me. And I abhor debt. I really believe that I would not have turned my financial health around at that point in my life if I had never worked in banking. It really opened my eyes to the impacts that our financial choices have, both in the short and long-term. That first year was a crash course in financial products and services, and how I could leverage them to help me achieve my goals. And the years that followed felt kind of like earning a degree in money management (without all the homework).
Like the sound of that? Well, you don’t have to ditch your current career and start working in banking (although it is a great choice for some!). If you stick with me, I’ll try my best to share my experience and tips to help you jump start your own financial journey.