Where can I find financial advice for 20 yr olds?
2017, Business Insider produced this great article about financial advice for 20 year olds. There are 2 simple elements to a great foundation for young people – save and don’t spend.
How do I balance saving and enjoying life?
You’ve just got your first proper job, you have money at long last, and, bills are low (if you are living at home with parents). Life is for living right? There is plenty of time for saving isn’t there?
There is plenty of time for saving, but leap forward 30 years, and imagine, if you could look back and appreciate the great financial lessons you put into practise when you were 20. (In fact, if you are 50+ now, and can’t wait to stop working, what would you tell your 20 year old self? What lessons could you now teach yourself back in the day?
There is also plenty of time for fun – the balance is being responsible (which sounds like a drag) and take everything in moderation – there is advice I would never have taken back in my 20s!
Two simple rules are to avoid credit card debt and start saving for retirement as soon as possible
Why should you avoid credit card debt?
- Credit card debt can be expensive
- Credit card debt impacts on your ability to get a decent mortgage in the future
- If you can’t get a mortgage, you’ll have to pay rent which is essentially dead money
- You will get used to relying on the credit
- Your debt will creep up – first £500, then £700, then up to £800, then £1000. Every time you break another barrier (£1,000) it seems more normal. All of a sudden, it’s in the region of thousands and you are paying hundreds each month to stand still.
- It’s too easy to spend money on credit cards – it doesn’t feel real
- It’s easy to lose track of – until the bill comes in – then you have to pay for the thing you have already enjoyed – so that leads to resentment and unhappiness.
How to avoid credit card debt?
- Don’t use it as an additional source of income
- Only use the credit card if you know you can clear it in full
- Don’t forget, that whatever is spent on it has to come off your income next month
- Never base your decisions on the ‘minimum monthly payments’ – that is how the companies make their money.
- 0% still has to be repaid – it’s a short slide from 0% to 18% and above when you cannot move to another lender
- Most of all, remember that it has to be repaid one day
Why should you start saving for retirement?
- Every 5 years you delay starting a pension, you will need to pay in double to reach the same amount
- Saving for retirement is tax efficient
- When you retire, you can still access some of your money as a tax free lump sum, so it is not locked away
- If you are now receiving your first payslip, you will have more income than ever before, so by keeping 80% of it and putting 20% into a pension, you are still far better off than you ever were
- Getting into the saving habit as soon as possible will bring great rewards in the future
- The sooner you have ‘enough’ (after age 55) the sooner you will be able to stop work
Common mistakes for not saving for retirement
- I will get a State Pension – well you may, but is that going to be enough for you to enjoy possibly 40 years of retirement
- My costs will reduce when I retire – this may be true – but the time you will have to spend your money will increase hugely – so all that time and no money – how does that look?
- My house is my pension – unless you live in a large house, and can sell that, buy another smaller place and have probably £300k spare, you probably won’t come close. Plus you still need to live somewhere
- I’ll do it later – remember the 5 year rule – the sooner you start, the sooner you can retire
- I pay into a company pension – that can be great, but if it is the employer bare minimum Auto-enrolment scheme, the chances are that your pension will be far less than you think
- Not considering inflation – the cost of living in the future will be significantly higher than it is today, bear this in mind when making your calculations
- I can’t afford it – that may be true – or it may be a choice of where you spend your money at the moment – quite often you can choose where you spend your money.
Youth and our twenties is for fun, exploration and living, and there can be a balance to be made by keeping an eye on the future. Your early retirement years can also bring about much fun, exploration and life, and at that time, you will truly value the freedom you have at last.
Have a chat to some aged 50+ and ask them what lessons they wish they could have shared with themselves at age 20 – there is knowledge all around.