Most schools don’t teach kids how to manage their money. This is a real shame, as it is a lesson that you really need to learn. Unfortunately, as soon as a young person lands a well-paid job, they blow all their money on clothes, nights out, a car, tickets to festivals, and having fun. Before long, they are in debt, unable to cover the bills, and begging the Bank of Mom and Dad to step in with a loan.
Does that sound familiar? If it does, you need to learn how to manage your money. Unless you do, you will continue to make mistakes well into adulthood, which could have a disastrous effect on your future wellbeing.
Being financially savvy is not about having a great job or an expensive home. It’s about learning to manage what money you do have. With 13.3% of young Australians unemployed, now is an excellent time to get a grip on your finances. Hopefully, your parents set you a great example, but even if they didn’t, here are the most important things you need to know about money.
We live in an instant gratification society. Everything we see, we want. Our social media feeds are full of glamourous photos of designer outfits and shoes, luxury holidays, and a million and one other things. Of course, we want the lifestyle we assume everyone else has, but in reality, someone has to pay for that lifestyle.
Just because your best mate has a brand new car or your girlfriends have tickets to Splendour in the Grass, if you don’t have the ready cash, you can’t afford to go. Yes, it’s that simple.
Be sensible. Either save up for the things you want or learn to live without. Sure, it’s hard not having nice things or living it large with your more affluent friends, but exerting self-control at this stage in your life will stand you in good stead further down the line.
Don’t Accrue Debt
Australians pay $32,874,733,510 in interest on their credit cards each year. There are 16,699,272 credit cards in circulation, which is one heck of a lot of debt.
Debt is sometimes unavoidable. Buying a home, for instance, is impossible unless you take out a mortgage. However, whilst there is nothing wrong with having a credit card and using it for emergencies, once you allow debt to spiral out of control, you are in a very dangerous place.
By all means, apply for a credit card. In fact, do, as this will help to build your credit rating, which is a good thing. But, don’t use credit cards as a safety net when you overspend each month. Before you spend on a credit card, think carefully: “do I really need this item, right here, right now?” If the answer is “no, not really”, walk away.
Once again, it all boils down to self-control. Be disciplined and don’t let yourself be talked into spending money you don’t have.
Most young people don’t earn a fortune. If you are studying or working in a low-paid job, this is most definitely the case. Money will be tight, so every cent counts.
Because you don’t have oodles of cash, it is imperative that you take responsibility for your money and draw up a budget. Accounting for every cent you spend will save you from making a bad decision.
Download a budget template and sit down with your bank statements. Look at where your money goes and decide how much you need to live on each month. Itemise bills (rent, utilities, car payments, etc.) and then check what you spend on other things, for example, food, drink, entertainment, books, holidays, etc.
Once you know where you’re at, you can create a budget. It will help you live within your means. There are some great apps available, which will help you itemise your daily expenditure, from a morning latte to a couple of beers in the uni bar. It is very easy to fritter away money without even realising it, but if you make a note of your spending, it forces you to be more accountable.
Start Saving Now
Everyone needs a rainy day fund. You never know what life is going to throw at you, so be prepared. Many young people live in the moment, oblivious to what’s around the corner. Don’t be that person.
Imagine how awful it would be if your landlord kicked you out or you lost your job. With an emergency savings fund, you would cope just fine. Without one, life would be pretty miserable for a while.
Sadly, interest rates are a poor 1.5% right now but look around for a savings account that pays at least some interest. Once you have enough money to pay the bills for three months, you can start saving for the things you want.
Do you have travel plans or a burning desire to buy a new car? If so, start saving. Put aside a little bit of money each month and before you know it, you will have a big pot of cash. Isn’t that better than blowing a fortune on a credit card?
Save for Retirement
OK, so it probably feels as if you will be forever young, but seriously, old age creeps up on you and before you know it, you’re sitting in a comfy chair with a mug of hot cocoa and the grandkids are playing at your feet.
The best time to start saving for retirement is in your early twenties. Google “compound interest” and you will soon see why this is an awesome plan.
Unless you want to work until you drop dead (clue: most people don’t choose this option), saving for retirement is a necessity. There are many retirement savings plans out there, so have a chat with a financial advisor and see what your options are. It probably seems like the definition of boring, but wouldn’t you rather look forward to a comfortable retirement, cruising the world and having fun, as opposed to spending your days with fifteen stray cats and a few cans of beans?
Invest in Health Insurance
Health insurance is right up there with retirement plans. It is one of the things all young people assume is optional, right up until the point where they need root canal surgery or they break their leg in three places whilst snowboarding on Mt. Buller.
You need health insurance, period. It covers your health costs and makes it stress-free if you need to pay a visit to the emergency room. Yes, it’s an expense that you probably don’t want to pay, but despite the fact you feel invincible right now, it is much better to be safe than sorry.
Choose the Right Partner
You are young, in love, and your relationship is going to last forever. Unfortunately, don’t expect a happy ending if one of you has no concept of financial responsibility.
Money is the main reason why couples break up. Do you really want to be in a relationship with someone who spends money like it grows on trees? Once they have spent their own cash, they might just decide to start on your bank account.
It’s good to be generous and nobody likes a skinflint, but financial savvy is just as important as looks and personality. Yes, really!
You don’t need a degree in finance to be good with money. You just need self-control and a desire to plan ahead. Follow the above tips and your future self will be very grateful.