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.
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…
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?