Starting Out? Set a Mindset for a Lifetime of Shrewd Finances
Whether you’re a fresher or starting out on your own. Whether it’s your first foray into the big wide world or you’re setting up a new home, flying the nest brings freedom but also the opportunity for your first financial mistakes.
Money can be unforgiving. A misjudgement here and there, the temptation to splurge the cash, or the urge to max-out on credit when you’re young can bite back for years to come.
Applied early, some loose rules along with sensible saving and spending habits can reap rewards for the future of any young adult making their way in the world.
Budgeting – Begin at the End
The first-ever paycheque is a landmark moment in anyone’s life. Whether it’s a first month’s earnings, student loan instalment or even a deposit from the bank of mum and dad, the temptation to treat yourself can be overwhelming.
But before you spend any – or even all – of it, think of your goals – short, medium and long-term – and how you will achieve them by saving sufficient funds over a period of time.
A classic school of thought when it comes to budgeting is the 50 / 30 / 20 rule. You can adjust it slightly to suit your circumstances but the general principle is a solid one for the achievement of financial harmony.
It means dedicating half of your earnings to essential spending – rent, utilities, bills and food – those that your existence and keeping a roof over your head rely on.
The next 30% can go towards lifestyle spends. These include all those lovely things in life that make it worth living. It might be eating out, nights with friends or subscription services such as Netflix, music streaming sites or a gym membership.
The final 20% should then be squirrelled away into a savings account. Don’t worry if the final fifth of your after-tax earnings – that which you will put away for a rainy day – doesn’t amount to a significant sum. When it comes to savings, every penny counts and you’re in it for the long haul.
Influence the Impulses
Some people will say they simply suck at saving. And while it’s certainly true that some of us are more impulsive than others, there are steps you can take to curb those compulsive cravings for the latest cool stuff.
Next time you’re about to click on “add to basket” on something which could bust the budget, manage your impulses by playing a little game of time-out.
This means if the little voice in your head says “I really shouldn’t” or “can I afford it?”, write down what it is that you have your heart set on, put the note to one side and then sleep on it – under your pillow if need be.
Wait 24 hours or so and revisit the would-be shopping list. Ask yourself, do you still want it? Do you need it? If it’s a really big purchase, you might want to ponder a little longer. Say you’re after the latest iPhone, maybe wait a week and see if you still can’t live without it.
And, don’t lose sight of your end goal – the one you set yourself above. Is the purchase really more important than setting back your longer-term sights?
Be Wary of the Spread It on Credit Lure
Banks and providers of credit target young adults for very good reasons. They are often the very people who have high spending aspirations – be it on a first car, fitting out a first house or a splashing out on a coming-of-age holiday.
Add to that, once people choose their first overdraft facility, credit card or same day loan provider, they will often stick with them for a good while and make use of the funds on offer which will take some time to pay back. Once they’ve got you, they have you for a while.
Stick with cash wherever possible. Credit cards can be an expensive way to borrow, and repayments can go on for many years if you find you are unable to clear the balance.
Remind yourself just why finance companies love young adults – that generous overdraft limit really isn’t provided by them for your benefit at all. Think of credit card offers as a potential trap – a debt trap.
And avoid credit cards and alcohol. Beer goggles and buying rarely end well. That “worry about it later” feeling can quickly turn into a “regret it in the morning” remorse.
If you really don’t trust yourself after a few drinks, try downloading an app blocking widget to your phone to prevent you from opening Amazon, eBay or Etsy during a period of inebriation.
The Bottom Line
So, you’ve mastered the basics – budgeting, knowing your limits, saving what you can and not overdoing the credit line. Like many enjoyable things in life, spending can be bad for you, but in small doses, it shouldn’t do too much harm.
It doesn’t matter who you are, what age you are, what stage you’re starting out at or what you want to be “when you grow up”. Like it or not, personal finances are for life and are not just about the here and now.
Save money where you can. Make the most of cashback sites, discount codes and offers designed for younger people. Earn interest wherever possible and with as much as you can spare. Insure what is important to you – cars, contents and things you can’t live without.
And finally, don’t be too hard on yourself. We all make mistakes and we all make plenty when we’re young. Ok, so you blew a week’s wage on a pair of Yeezys. It happens.
The trick is to bounce back after a big blow-out. Don’t simply give up if you don’t meet your targets right away or you take a step back along the way. As long as you’re in control overall, then you’re well on your way to making your money work.« What Should I Do If I Keep Being Rejected for Loans and Credit Cards? Should You Get a Payday Loan From a Broker or a Direct Lender? »