Hi there! Today I want to talk about savings, as the eligible age for state pensions is getting pushed further and further, it is likely that by the time a 20-something retires, there is not much left for grabs. So it is your responsibility to plan for a financially comfortable future, and it starts now.
Starting early is the best way to build a strong foundation for your future. Sure, you are freshly independent and want to live it up like the cool kids on TV shows, but trust me, a little effort early on can make a big difference down the road.
Reconsider university
When I graduated high school, I did not even think about not studying some more. 15 years later, I barely use my 5 year business degree. Yes, it gave me a good set of tools to face life, but was it worth five years of my life? I am not sure. At least, I graduated debt free. If you are about to go to college, and to finance it with loans, think hard about it. How much would you make right now without a degree? How much will you make once you graduate? How fast will you pay off your student loans? Make sure it is a worthwhile investment. Electricians, plumbers, construction workers make good money without needing a five year degree.
Pay off your student loans asap
Student loans are a burden preventing you from building wealth from an early age. The sooner you pay them off, the sooner you will be able to improve your financial situation. See first point before you even take student loans.
You are young, work more
I spent most of my college years working odd jobs to pay for school. Then as I got my first “real” job, I still kept hustling on the side. A weekend shift at a local store, bartending or tutoring in the evenings can help you earn more and save more. There will come a time when you are too tired or too busy with kids and a family to work on top of a day job. But if you are able to sleep five hours when you party, you should be able to have a few evening shifts here and there.
Live like a student
Now that you got your first job, how about living like a student for one more year? Having roommates is not that bad (most of the time), and delaying buying a car is nothing impossible if you are used to cycling and taking the bus anyway.
To stay healthy you may want to replace the ramen noodles with actual food, but resisting lifestyle inflation for a little while as a young professional can help a lot with building your savings.
Make your first budget
I am not a big fan of budgets, but since you are young and unfamiliar with money management, it may be needed. Write down your income(s! see “work more”), and your expenses. That’s rent, food, council tax and bills, phone, nights out, dates, travel, holidays, the gym, clothing, hygiene… and a little extra for miscellaneous. All that is left should go into savings for the future. If there is nothing left, once more, refer to “work more”.
Take company match
Your first paycheck will look like a LOT of money. Most of the time, it will not be. But since you feel like a millionaire, you won’t mind that your company keeps a little bit and pours it into your retirement account. If you do it from the first paycheck, you won’t miss the money. And many companies will match what you invest, meaning free money! Let the money grow for the next 40 years and you should have a comfortable retirement.
Open an ISA
As you are getting familiar with savings thanks to your first paychecks, you want to maximize the return on said savings. So open a tax free savings account and try to max it out each tax year. The allowance for this tax year is £11,880, which is not easy to save on your first job, but unlike retirement accounts, you can dig in if you really need. Beer is not an emergency…
Start investing
Finally, in your 20s, you have time on your side. Start investing and discover the amazing power of compound interest. Since you are not familiar with investing, be prudent, investing small sums each month into index funds for example (could be as part of your stock and shares ISA).
Doing all this should help you get a pretty solid start in your 20s. See you next time to talk finances and saving money in your 30s.
What would you add to my list if you are over 20?
I definitely wish I would’ve saved more in my 20’s. I definitely didn’t do enough. On the other hand, I’m glad I didn’t go into huge amounts of debt during that time either!
Student loans in the UK are not the same as student loans in the US or elsewhere. They won’t stop you from building wealth and it isn’t always beneficial to actively pay them off in order to clear them. They don’t act like a chain around your ankle like they can in other countries – Martin Lewis explains it quite well here: http://www.moneysavingexpert.com/students/student-loans-repay
I think taking the company match is one of the most important tips! I took advantage of this young, and it has really paid off for me!
I totally agree with Amber.. I’m from the UK and if you are okay at managing money you may be able to save/invest and compound the money faster in investments than in repaying the debt.
Indeed, savings and bonds also beat the interest rates of debts. Whilst very daunting to have debts, if one is rational one ought to work out the best financial options.
Great advice! I’m trying to hustle and save as much money as possible in my 20s.
That will give you a fantastic head start, some of my friends in their 30s still have nothing saved and time is playing against them.
Thanks for the great tips. These are all things that I’ve started thinking about especially since I’ll be graduating very soon. The points on the university/college degree is really important for people to start thinking about. Overall student loans are number one on my list along with saving up money for the future.
I’m not yet in my 20s, but those tips are so great, I might as well follow some of them now. 🙂
If you are already thinking about it you are off to a great start!