Change or start a job
A new job is an exciting event! But which also raises several financial questions. A good opportunity to take stock and assess your goals.
You get a new job
How will you use your new income? First of all, a review of your financial situation will allow you to make certain choices.
One of the first questions concerns the management of a debt, often related to studies. At first glance, you might think that paying off the debt first is the best choice. However, if your investment offers the possibility of generating a return higher than the interest rate of the student loan – which is often the case – the investment becomes a more attractive option. In addition, it must be taken into consideration that the interest on the student loan is subject to a tax credit
You can choose from several investment vehicles: an RRSP and a TFSA are both advantageous investment options but with quite different characteristics. Obviously, in an ideal world, it would be preferable to maximize both options; but if you can’t do that, which one should you choose? It all depends on your tax rate. If you plan to have a lower marginal tax rate in retirement than you do today – as is the case for most people – then you should emphasize an RRSP.
Along with debt management and an investment strategy, it would be prudent for you to create an emergency fund by opening an account for that purpose. The amount should cover three to six months of living expenses in the event of an unforeseen financial situation or a sudden loss of income, especially if you are self-employed.
If you opt to become self-employed, other important factors have to be taken into account. In addition to being responsible for paying the total amount of your QPP contributions, you will have no employment insurance coverage and you will have to save for your retirement. Even so, some expenses related to the operation of your business are tax-deductible.
In addition, other savings solutions may be available through your employer. A group RRSP, a deferred profit-sharing plan (DPSP) and a pension fund may also be attractive choices for your savings.
Need advice to see more clearly? Our team helps you define your financial goals to offer you investment strategies that meet your needs.
Isabelle Dion, MBA, F. Pl., FCSI, CIM®, RIS
Vice President, Distribution, FÉRIQUE Investment ServicesAre you changing jobs?
Starting a new phase of your career may involve the full gamut of emotions. Whether it’s welcome or not, this life event usually involves decisions about a number of financial matters, such as management of your severance pay, management of your accumulated pension fund and the benefits offered by your new employer.
If you have received severance pay, be sure to use it wisely. You can use this amount to:
- pay all or a portion of your debts;
- save for the future by making a direct transfer to your RRSP (tax-free);
- obtain regular income to pay your living expenses;
- create an emergency fund for unexpected expenses (three to six months of living expenses);
- or generate income by putting the amount into interest-bearing investments.
If you have built up a pension plan, you may choose to:
- withdraw the accumulated amount now;
- transfer the present value of the pension to a LIRA or an RRSP; or
- leave the accumulated amount in the plan and begin making withdrawals when you retire;
- this decision is very important, and you must take into account the pension’s implicit minimum rate of return.
