As John Lennon once said, “Life is what happens to you while you’re busy making other plans.”
And though he might have been referring to the various falling-outs and falling-in-loves that happened during the recording of the White Album, he might as well have been talking about the procrastination with which so many approach their fiscal futures, and the damage that can sometimes cause to longtime financial security.
That said, it’s understandable; it can be hard to think about the future when you are young. You are probably more concerned with school, your social life and your career, rather than conceptualising a distant, intangible concept such as your future bank balance.
But it is essential to adopt a disciplined approach to spending and saving as early as possible in life if you’re to enjoy security and satisfaction into your golden years. Here are a few pointers for young adults on how to plan for a responsible financial future.
Start Saving Today
One of the most important things you can do for your future is to start a sustainable, responsible approach to saving money today. It may seem like a tedious task or a distraction, particularly with summer around the corner and so much fun to be had, but there are a few simple ways to start saving that will set you up for the future, perhaps not financially, per se, but by helping you developing a keen understanding of fiscal responsibility early in life.
You can, for instance, open a savings account and make regular deposits, or invest in a retirement fund. Even if you only save a little money each month, it will add up over time, and the knowledge and habits you’ll accrue along the way will be vital.
Set Financial Goals
It’s important to have financial goals to save up for specific things. Do you want to buy a house one day? Save for retirement? Pay off your student loans? Once you know exactly what you’re saving for, you can develop a plan to reach your goals.
Make sure to set realistic yet tangible goals so that you have something to focus and fixate on and you don’t get discouraged from sticking to your newly-adopted fiscal thriftiness.
Budget Like A Business
One of the best ways to stay on track with your finances is to create a budget. First, track your income and expenditure to know where your money is going each month. This will help you make adjustments to ensure that you save enough money.
Just as a business isn’t ever satisfied with simply breaking even, so you shouldn’t be content with taking your paycheck down to the wire each month. Instead, you should be budgeting each and every month with ‘profit’ in mind, much like a business would.
Make a point of setting aside at least 30% of your income, ring-fenced for your savings account. The remainder, though admittedly a less encouraging amount, can be dedicated to treats. And this compartmentalisation will go a long way to you fine tuning your financial health in the future.
This strategy is particularly effective if you have a budget that also incorporates that savings target we mentioned earlier. You may even consider setting up automatic deductions from your monthly income, which many bank accounts can facilitate automatically.
Pay Off High-Interest Debt First
It is important to first focus on paying off any debts you have with higher interest rates, such as credit cards. This will save you money in the long run because you will not accrue as much interest on your debt. You can use extra money each month to put a dent in your high-interest debt, with the added bonus that doing so will help improve your credit score. Low-interest debt, such as your student loan, can be paid off over time, with a little less urgency.
Pay Your Bills On Time
One of the best ways to cultivate a strong credit score, even when you’re not earning big bucks, is to pay your bills on time. This includes things like your rent, utilities, and credit card payments. In addition, if you have a good credit score, you will be able to get better interest rates on loans and lines of credit.
Read: 8 reasons to look after your credit score
Start Investing
Investing is a great way to grow your money over time. You can invest in stocks, bonds, or mutual funds, amongst other things. Rather than simply putting some money down on whatever is currently financially fashionable but fiscally volatile (crypto, we’re looking at you), you might want to talk to a financial adviser to see what kind of investments are right for you.
As the team at financial planning experts PMW tell us, the world of investment can often be complex and opaque, and it’s only with personalised and forward-thinking financial advice that you can reach your financial goals.
Though some may think they can gain enough investment smarts from browsing a few Reddit forums and following financial influencers on Insta, when considering growing your own money, it’s worth enlisting the help of a Certified Financial Planner (CFP), which is the highest global certification available to financial planners in the UK, as acknowledged by the Chartered Institute for Securities and Investment.
Get A Side Hustle
No matter your age, it’s never too early (or late) to consider different revenue streams and channels for making money beyond your usual job. If you’re a young adult, now is the time to start thinking about your financial future and how you can make your money work for you, and one of the best ways of doing this is by diversifying your earning capabilities through a side hustle. A side hustle can be anything from freelance writing to dog walking to selling products online.
If you are interested in how to make money as a freelance writer, in particular, then it might surprise you to know that you can earn a decent income as a ghostwriter. The good thing about it is you get to work with a cooperative team who cares about content. You can read more about some top tips on perfecting your side hustle here.
The Right Type Of Insurance Coverage Matters
Insurance is one of those things that most people know they need but few understand. And as a young person, seemingly bulletproof and most likely fearless, conceptualising ‘worst case scenarios’ can feel almost perverse.
As a result, it can be tempting to go without insurance for the various walks of life that need covering, but in truth, insurance coverage matters, even if you’re young.
Adopt Frugal Living Habits
One of the best things you can do for your financial future is adopting frugal living habits; within reason, of course. Rather than cutting back on all of life’s wonderful (yet expensive) pleasures, this simply means learning to live within your means and spending less than you earn.
A great way to do this is to make proactive efforts to minimise impulsive purchases, taking a moment to think before you buy, limiting late night browsing, and generally making it harder to spend (by hiding your credit cards and leaving them hidden, for instance).
Another great way to live a little more frugally is to cut a single expense from your life each week or month. Cutting expenses on your Wednesday espresso in the local cafe one week, or your Friday night takeaway the next, or even that second bottle of wine you buy to finish off your Sunday roast, can all make one massive difference when considered accumulatively. Each time you make such a sacrifice, put the equivalent money in the kitty for a rainy day.
Setting up a separate ‘emergency’ account into which you pay a small sum each month is a sound idea, giving you a buffer in case your budgeting hits the skids.
The Bottom Line
Learning to manage your finances is an integral part of adulthood, and one which will help your golden years be just that; golden. All you have to do is stay disciplined and remain patient as you work towards your goals, and you’ll be rewarded with financial security! Possibly…
*Anything written by IDEAL Magazine is not intended to constitute financial advice. Always consult with an independent financial adviser or expert before making an investment or any personal finance decisions.*