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Annie will need to start paying down her student loan six months after graduating, no matter what. (WAYNE GLOWACKI / WINNIPEG FREE PRESS) Photo Store

Annie is a student whose worries extend beyond exams, lab quizzes and research papers.

With each year of university, her anxiety mounts about the growing student debt awaiting her when she graduates.

"I'm overwhelmed," says the 21-year-old science student, in her third year at school. "I worry about graduating and not finding a good job."

So far, she has accumulated almost $10,000 in student loans over about 21/2 years. She expects she'll finish school in the next two years with about $21,000 in debt.

Though she has no RESP to draw on, she does receive about $2,400 a year from her parents and she works during the summer to offset costs.

She lives with her parents and has few costs other than a bus pass, cellphone and coffee and food purchases while at school.

Annie says she is considering pursuing a master's degree after graduation, but she would prefer to work a few years first to get out of debt.

She also would like to move into her own residence and maybe buy a car.

The problem, she says, is she is not even sure where to start when it comes to planning for her future.

Kathy Holod, a financial planner at Scotiabank, says Annie's best strategy is to begin saving as early as possible. In fact, she says Annie could likely begin stashing away cash right now.

While she doesn't have a lot of money to spare, it's likely Annie could find a little every month to set aside.

She has about $3,700 in the bank to get her to the next semester, when she receives another student loan of about $2,000 in January.

"If she has not already done so, Annie should move these funds into a tax-free savings account (TFSA), a unique account that allows funds to grow without tax implications."

The interest savings won't be substantial, but every penny counts.

She'll also need to prioritize her goals so savings can have the biggest impact when she graduates.

With that in mind, Holod says Annie should consider starting to save for a down payment on a car.

"Assuming she can purchase a car for $15,000, Annie should at least save $1,500 --10 per cent -- for a down payment."

Based on her cash flow of $532 a month and her current monthly expenses of about $296, she should be able to set aside $62.50 every month for the next two years for a down payment.

She'll still have other expenses related to car ownership to consider, such as a monthly payment, insurance, gasoline and maintenance. Holod says Annie could even save a little extra now to help mitigate those costs when she graduates, finds a job and eventually buys a car.

"Annie could save three months' worth of additional expenses, or $1,175 in two years." That's about $50 more a month of savings from now until she graduates.

Holod says this savings strategy leaves Annie with about $181 a month in her current budget for other goals. Some of that money could be used to save for eventually leaving her parents' home.

Annie should plan in advance for that, too. Holod says she'll need to budget at least $900 a month for rent, and she will need to save about three months' rent in advance before moving out on her own. To do that, she'd need to save $150 a month over the next 24 months.

"Although Annie has enough for this in her current budget, she also must consider the additional costs of living in an apartment, like furniture, groceries and utilities," Holod says.

Yet, Annie doesn't really have much money left every month in her current budget if she sets aside money to buy a car in two years. "That's why I recommend that after she graduates, she holds off moving out until she has saved additional funds to cover the expenses of the extra required items."

She is likely better off saving whatever additional money she has left -- about $181 every month while in school -- to build a rainy-day fund.

Of course, buying a car and moving out hinge on her finding a job, but paying off her student loan doesn't.

Six months after graduating, Annie will need to start making payments, and although she doesn't pay interest today, those charges will start once she graduates. For that reason, Holod says if Annie finds a job soon after graduation, she should start making debt payments as soon as possible.

Her estimated monthly student-loan debt payments, based on a floating rate of 2.5 per cent above the prime rate, will be about $227 over 10 years. If she fails to find a job immediately, at least she will have some savings set aside for her car purchase, as well as the rainy-day fund, to make those loan payments.

Yet, Holod says even if Annie finds work, it will be challenging for her to balance all three goals at once. Her total annual costs after graduation, if she lands a job, buys a car and moves out on her own while paying off her student loan, would be about $25,000. That includes a $267-a-month car payment.

Holod says Annie would need to earn at least $32,000 a year before taxes and deductions to make ends meet.

The Manitoba tuition-fee income tax rebate will give her a little breathing room, Holod says. This program provides graduates of post-secondary programs a rebate on Manitoba income tax of up to 60 per cent of their tuition as long as they work in the province. If Annie paid $3,000 a year in tuition over five years ($15,000), she can expect a $9,000 tax rebate spread over a number of years.

"This would give her anywhere from $1,500 for six years to $450 for 20 years in tax savings," Holod says.

But the rebate money isn't factored into the forecast because Holod says the program could be cancelled at any time, and it's best for Annie to plan as though she won't get the rebate.

That way, any rebate cash she receives makes her goals all the more achievable.

Looking at the big picture, however, Holod says Annie should really consider delaying buying a car and moving out after graduation.

"If she waits one year after graduation to purchase a car and move out, she can save enough to pay for a car outright."

Without paying rent, making car payments and having to cover other living costs, she would be able to save about $15,000 in one year, based on a $30,000 gross annual salary.

"Combined with the $1,500 she would have saved through school, she would have a total of $16,000 -- easily enough for a car."

All the while, she could chip away at student debt. Then, once she buys her car, she can save for other goals like moving out, tuition for a graduate degree, or even longer-term milestones such as a down payment on a home and retirement.

Of course, everything is contingent on one thing: finding full-time employment after graduating.

"With a job, it won't take Annie long to accomplish her goals as long as she's patient and diligent," Holod says. "And that begins with good savings habits today that will set her on the right path for tomorrow."

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Annie's finances

Income and savings

Parents' annual contribution: $2,400

Savings: $3,200

Student loan: $6,500 a year

Total monthly cash flow: $532

Monthly expenses

$842 with tuition and books; $296 without

Debt

Student loan: $9,200

Republished from the Winnipeg Free Press print edition October 20, 2012 B13