An old adage says that you’re never too young to begin financial planning. For today’s young adults, this has never been more apt. Astrid Lynch gives her best tips for getting an early start on financial stability.
There’s no doubt about it. Young people today have it harder financially then those of previous generations. Inflation has left wages in its dust, and those in the 18-24 age bracket have it hard enough saving for groceries, let alone a university degree or a house.
But there is something I’ve observed which gives me hope. Today’s young adults seem to be more interested in money and finances than ever before. This is fantastic, for several reasons. Firstly – and the obvious one – is compound interest. Here’s a stat: if you invested $10,000 in the ASX in July 1992, it would have swelled to $131,413 by June 2022. A tidy nest egg by any estimation. The earlier you save and invest, the more you stand to make. “Smaller steps started sooner” are easier and can outweigh “larger lump sums later”.
Secondly, the sooner you seek financial advice, the earlier you become financially literate and begin making really sound decisions around your money. The flow on from this? You’re less likely to end up in debt at a young age; you’ll be more independent and empowered; you’ll open yourself to more opportunities; and you’ll build more wealth for the next generations. (What? Too early to talk about kids?)
I’ve been in the financial advice industry for over 12 years. When young adults step into my office, this is what I tell them.
7 financial advice tips for young adults
1. Create a budget
Start by tracking your income and expenses. Create a budget that outlines your monthly income, fixed expenses (like rent and utilities if you’ve moved out or tertiary debt), and variable expenses (like entertainment and dining out). This will help you understand where your money is going and make adjustments as needed.
2. Spend less than you earn
It’s an obvious one, but still something many young adults (and older ones, too) fail to live by. Yes, it requires discipline, but there are some things you can do to make it easier. For instance, remove the temptation. What I mean by this is that you should have a segment of your income deposited automatically into a separate savings account. This way, you won’t be enticed to spend it when you see something you don’t really need. In other words, it’s easier to eat healthily when we don’t have junk food in the pantry.
3. Manage debt
Yes, even young adults can rack up a fair amount of debt in a short time. If you have student loans, credit card debt or other loans, create a plan to pay them off systematically. Focus on the debt that could be paid off first, or depending on your situation, high-interest debt first and consider consolidation or refinancing options if they can save you money on interest. Have a look into the “Snowball” and/or “Avalanche” approaches.
4. Set financial goals
Define short-term and long-term financial goals. Whether it’s moving out and renting, buying a house or car, or traveling the world, having clear goals will help you stay motivated and make it easier to remain disciplined and make sensible financial calls. Once you have those goals, create bite-size steps to get you there.
5. Beware the lifestyle creep
When that paycheck sees a boost, the immediate temptation is to ride the wave and elevate your lifestyle. Now, don’t get me wrong – treating yourself for your hard-earned efforts is only fair. But, let’s hit the brakes before pushing every dollar of that uptick into the lifestyle lane. If you don’t set up these habits now, you’ll find it harder to make the right decisions later on. It could look like that extra $100/fortnight broken into $25 for lifestyle and $75 towards your goals.
6. Don’t get sucked into what your friends are doing
Feeling like you’re playing catch-up is all too familiar, especially when it seems like your friends are snagging homes, jet-setting on extravagant getaways or leaping ahead in life’s race. But here’s the thing – appearances can be deceiving.
Can you really be certain that your friends are comfortably affording the lifestyles they’re flaunting? Or what hidden debts might be lurking beneath the surface? If your circle is financially thriving and zooming ahead while you’re still on the runway, kudos to them. But don’t feel that there’s an obligation for you to keep pace. Your journey is yours to navigate, at your own speed.
7. Seek financial advice
I cannot overstate the importance of financial literacy. Being comfortable and informed with money is the best thing you can do now to set yourself up for success in the future. At a basic level, this is understanding the Australian financial world and knowing how to invest in shares and things like what compound interest is. On another level, it’s about knowing what the right decisions are regarding your situation and your goals. We all need guidance from those who live and breathe this stuff, and the earlier we get that guidance, the better off we’ll be.
You’re never too young to set up your future
Social media has given rise to a lot of financial influencers “finfluencers”, and young adults are taking a greater interest in their money than ever before. I love this. But I’d recommend to all young adults that they seek out a professional financial adviser at some stage – somebody whose credentials you can see and trust, and somebody who can talk to you about your particular situation.
Pick up the phone or drop us an email. Financial advice isn’t just for the parents or the already wealthy, that’s a myth! It’s for everyone, no matter their age.