As a financial planner I tend to spend most of my time helping people to make the right financial decisions as they approach the end of their career. However, I thought it may also be useful to do a short blog aimed at helping those right at the beginning of their working lives.
So, here’s 10 short, sharp bullet points aimed at helping the younger generation….those in their late teens and early 20’s. If you want to be rich when your older, invest 5 minutes and read this….
10 financial tips for young adults
1. Start saving as soon as possible. At this stage of your life your financial commitments should be at their lowest. Assuming you live at home with family then you will probably only have your board, mobile phone and travel to work costs etc. The rest is yours. Depending on the size of your income you should be able to save a large percentage of your money at this stage of your life. By starting to save money straight away it forms a habit that will benefit you massively throughout your adult life. To establish how much to save, go to no 2.
2. Set a budget for your lifestyle costs and stick to it. Work out how much you need each week or month for clothing, going out with friends etc and stick to it. That will help you when you see that awesome pair of trainers, or that ‘drop dead gorgeous’ handbag that you don’t really need. If you can live within your means and discipline yourself at an early age, believe me, you will be rewarded for it in time. Also, don’t show off. As tempting as it is to want to look good in the coolest car, resist it and buy one that won’t lose half of its value in 3 years!! As soon as someone else starts benefiting from your income (in terms of loans etc) you’re in trouble and you’ll start going backwards financially. Buy an older car with a small engine so your insurance and running costs will be manageable. If you want to be rich, you have to make sacrifices. Buying an expensive car and borrowing money on it may get you the odd extra date BUT if you don’t have the personality and character to follow up then it will all be temporary anyway. Which leads to point no 3.
3. Invest in yourself. As well as building your bank balance, build your character. Get educated in the profession you want to pursue and aim to excel in it. A prospective employer will not be interested in the quality of your car, handbags or your trainers anywhere near as much as they will be in the quality of your personality, your accountability, your communication skills, your commitment, your manners etc. If you want to be rich in the future, then you will need a good income with a high proportion going into savings. This means you’ll need a good job, so be the person you need to be to get that job.
4. Invest any money that’s not required in the next few years. Bank accounts are great for keeping your money safe and providing cash points when you need it, but they suck at growing your money. Once your savings start building to a surplus that are not required in the next few years, invest it. This will get your money working for you. A Lifetime ISA is a great product for young people saving for a home, a pension is great for longer term goals. Learn about these products…which leads onto point no. 5.
5. Get educated about money. Understand what compound interest does. Learn about appreciation and depreciation. This will all help you to avoid making financial mistakes. Learn what APR means so you realise why store cards and Visa cards are so dangerous.
6. Set goals and budget towards them. Stuart Houlbrook, a fellow financial adviser in Dorset recommends that you set up multiple accounts for specific goals and put regular amounts in each month. “If you don’t”, he says “you live to your means and spend whatever you have left over. Having all those goals covered by standing orders to savings accounts makes it so you don’t have to think about how much you need to save each month”.
7. Put a monthly amount aside to save for any big expenses such as your car or a holiday. Having money saved for your future needs means you wont have to use Visa cards (unless you know you can pay the balance off each month). As tempting as they are, these things suck your money from you like a leech, especially if you don’t pay them off immediately.
8. Only borrow money for things that appreciate, not depreciate. In general, properties and investments appreciate whereas cars and clothes depreciate. Getting on the housing ladder is usually a great move but you will probably have to get a mortgage to do this. While debt is not your friend, if the asset you’ve bought with it is increasing in value, then this will still increase your wealth over time.
9. Don’t delay starting a pension. You may question ‘Why a pension at my age?’ Well here’s an interesting statistic. Assuming a 5% return, a person who saves £200 per month into a pension from age 20 and stops paying in at age 33 will have more in their pension pot at age 57 than someone who saves £200 per month from age 30 and pays in right through to age 57. Interestingly, the person who started paying in at 20 will have contributed less than half of the person who waited until 30. So, don’t delay. Pensions are not just for old people!
10. Keep things in perspective. Your family, your faith and your friends are all more valuable than your money. Money is a great servant but it’s a terrible master so keep it in its place. Make sure that your money enhances and facilitates the life you want, but dont put it in front of things that are ultimately more important.
For those of you that are interested in a deeper understanding of how to make your money work for you then read ’10 Steps to Financial Success – How to get the best life with the money you’ve got’. This will give you all the knowledge you need to achieve the best long term financial future.
Over n out