The reality today is that very few young people think about saving their money for later life. The general perception is that financial planning is usually reserved for older adults who are in their 40s. The fact that many of us neglect financial planning until their 40s suggests that we don’t realise that there are a few easy ways to help you save and manage your finances that could pay dividends in your later years.
Here are some tips as a starting point:
Budget – properly. This is one of the basic principles of financial planning, so work out how much you are spending against what you are earning each month. This is really the only way to analyse which expenses are necessary and which ones could possibly be cut back. This handy demotivator tool shows you how much certain routine purchases – such as a coffee every morning – could be costing you each year. You don’t need to cut back on every single thing, but it might be worth thinking about how much you’re spending on lunches and if you could reduce these small expenses that add up.
Be sensible with your credit card. Late payments on credit cards are seriously damaging. The best way to avoid this is by setting up a direct debit that will ensure you never miss deadlines. If you can, you should also try to pay more than the minimum payment each month. This will enable you to build a positive credit history and will also protect you against rising interest rates. Try not to rely on your credit for day-to-day expenses and reserve it for big purchases that you can pay off over the course of a few months.
Keep an emergency fund. No matter how much you owe in student loans or credit card debt and no matter how low your salary may seem, it’s wise to find some amount of money in your budget to put into an emergency fund every month. This money will always be there should you get into financial trouble. Experts say that it’s important to have enough money to cover around three months’ worth of expenses if you find yourself in hardship.
You don’t need to have tens of thousands of pounds in an emergency savings fund and you could miss out on earning a higher rate of interest. Why not put some additional money into an ISA or savings account? It’s important to find the right account for you whether that’s an easy access option or a fixed rate ISA that will see your money work for around 5 years or more. Generally, the younger you are when you open a savings account the better due to compound interest.
Save for retirement. If you like living and spending the way you are used to while you are working, you are going to have to figure out how to pay for it when you retire! On top of these lifestyle costs, we often don’t consider the cost of life insurance or will writing. The good news is that the younger you start saving for retirement, the easier it is for you cash to grow. You’ll also benefit from much cheaper insurance policies as opposed to someone in their 50s. Wills are often cheaper than you might think, with many starting from around £150, or if you prefer, there’s guidance available on creating your will yourself. They allow you to specify who inherits your estate and how your assets are split. More information on wills can be found on this resource page.
These tips are a good starting point for anyone looking to save money and build for the future. However, should you ever get into financial problems and find yourself in debt, there are a number of free and impartial services that can help you. Some of these include the Money Advice Service and Citizens Advice, which have a variety of guides and information to cover all situations.