Under 30? 4 Financial Tips to Get You Ahead7th February 2016
It is no secret that young people have been under pressure financially. Finding a decent place to live and starting a family can be hard, let alone saving money and building wealth. The following are simple tips to get your finances in order and build a strong foundation for the decades ahead.
1. Become Financially Literate
This should be the number one priority, because it would be extremely hard to succeed with the rest if you have poor understanding of finance. Ideally, you have developed sound financial habits and learned about money from your parents, but not all young people are that lucky. Anyway, even if your parents were responsible with money and managed to pass parts of their wisdom to you, there are still new things to learn, new financial products to understand or new legislation coming out. Moreover, some things can only be truly learned by experiencing them on your own. If you learn to understand your money and treat it well, it will be more likely to stay with you.
2. Make Your Costs Lag behind Your Income
One of the first things you will probably learn about money is to avoid living above your means. It is reasonable to expect that your income will grow over time as your career develops. That will also enable you to enjoy a better quality of life in the future. Unfortunately, many young (and older) people make the mistake of spending what they haven’t earned yet.
Remaining patient can be hard, especially when we are constantly reminded about the wonderful things we “need” (and all our friends already have them) and how easy it is to buy them immediately with credit cards or loans. Keep in mind that owning expensive things will not bring you much long-term happiness if it also means worrying about mounting debt or struggling to move forward with saving for the really important goals. Wait until you actually get that raise and only then consider adjusting your spending habits upwards (but don’t forget to adjust your saving habits too).
3. Pay Yourself First
The previous point is common sense. Everybody knows it, but knowledge alone does not prevent some people from getting in trouble with money. One of the popular tips to help with wealth building and discipline is to “pay yourself first”.
In practice, you can regularly contribute to a pension scheme or set up a standing order to send a certain amount of money automatically to a savings or investment account as soon as you get paid, thereby protecting part of your income from yourself. This does not mean to invest instead of paying your bills. It means keeping your bills under control and making adjustments to your expenditures (e.g. downsizing your home, selling your car or eating out less often), rather than cutting your savings when money becomes tight.
4. Take Advantage of Incentives and Allowances
When you start working, you quickly learn that (besides yourself) taxes are one of the greatest enemies to wealth building. You should always try to pay as little taxes as legally possible in your particular situation, or at least avoid paying unnecessary and excessive taxes, which unfortunately often requires planning many years in advance. There are various tax incentives and allowances which enable you to earn income and save money in a tax efficient way – the big ones, which you should start looking at as soon as you have money to save, include ISAs (Individual Savings Accounts) and pensions. One problem with these is that the amounts, conditions and other legislation tend to change very frequently and it can be hard, especially for an inexperienced young person, to keep track of everything and have full understanding of all the opportunities. Hire an (independent) adviser – the cost will pay for itself many times over.