We often tell new graduates, “the world is your oyster!” However, life after college or university is not always sunshine and rainbows. Even with full-time employment and a salary on the horizon, new grads often find that the financial freedom they had anticipated is out of reach.

The way in which young adults approach financial planning can set the tone for habits down the road. Here are some tips to help you start on the right track.

1. Start budgeting and set aside the excess

As you begin to face increasing financial responsibilities, you’ll soon realize the importance of ensuring your expenses aren’t exceeding your income. The best way to do this is by budgeting. A one-time purchase of a Starbucks coffee or a Bubble Tea may not seem like much, but consistent purchases over the course of a month will add up. Reigning in your everyday spending can have just as important of an impact on your financials as getting a pay raise.

In addition, stick to the necessities and try to keep your recurring monthly expenses as low as possible. This will allow you to set aside a portion of your money into an emergency fund every month. Although unlikely, emergencies happen, and it is prudent to be prepared. Eventually, you’ll not only have a fund for a rainy day but also money for vacations, retirement, or a down payment on a home.

2. Build your credit score

It is important to start to build a strong credit score, which will help when it’s time to make large purchases down the road. The easiest way is by using a credit card and paying it off each month. You can make payments consistently on-time by setting up an automatic monthly payment.

3. Create a financial plan

A financial plan is a roadmap for your life. It allows you to identify your current financial stage, as well as your future goals. A financial plan isn’t as simple as just budgeting, as it defines both your short-term and long-term financial goals, and how to reach them. However, the plan need not be static. Rather, it should be dynamic and accommodating to your evolving circumstances.

4. Understand taxation

It’s important to understand how income taxes work, even before your first day on the job. The first tax form you will come across during onboarding is the TD1 Form – Personal Tax Credits Return form. Your employer will use this form to determine your tax deductions. Every Canadian worker is eligible to claim their personal exemption each year (the 2019 amount is C$12,069). As a recent student, you should at least report your tuition fee on top of the basic personal claim amount. Reducing the withholding tax on your paycheck can increase your disposable income.

5. Start investing

Once you are comfortable with your established budget and are able to put aside savings each month, it’s time to familiarize yourself with the world of investing. Investing while young, even if it’s only a small amount, is a great way to build good habits and enjoy strong returns in the long-run. By investing the money that you’ve saved from budgeting and other methods as early as possible, you will see your returns compound over long time periods.

6. Take advantage of tax shelters

Tax shelters are a great vehicle through which you can minimize your tax payments. As a new graduate, the best way to take advantage of these investment vehicles is through a Registered Retirement Saving Plan (RRSP) and a Tax-Free Savings Account (TFSA).

Although it may seem very early, starting to save for retirement in your twenties can greatly improve your future financial security. Every year, it is wise to make a contribution to an RRSP account and deduct it from your taxable income. There is a maximum RRSP contribution limit each year (you can find your allowed RRSP contribution and deduction dollar limit on your previous year’s Notice of Assessment). RRSP investments will be taxed at the time of withdrawal.

A Tax-Free Savings Account was made available to Canadian residents in 2009, and allows you to earn investment income tax-free. However, while contributions to your RRSP are tax deductible, contributions to your TFSA are not. Your personal TFSA contribution limit is prescribed annually and begins accumulating from the time you turn 18. You may find it practical to use your TFSA for your emergency fund.

With your whole life ahead of you, the possibilities and opportunities are endless. Your future self will thank you for taking the right financial steps now.