- As you become financially independent, money can become more daunting than before.
- Laying the foundations now will help you balance the present and still achieve your goals.
- Weâll look at the importance of planning for your future.
It can be a nerve-racking time to be responsible for your money as you become an adult. Managing bills, a car and striving to get onto the property ladder all whilst trying to keep an active social life can be tricky to juggle, but itâs not impossible!
Already in this blog series, weâve set the foundations that youâll need in earlier life by advising parents on how to teach their kids and teenagers about money. Now, alas, as you gain more independence as an adult, youâll also take on more responsibility too.
Get it right, and this is where you could set yourself up for a great financial futureâŠ
Cut costs where you can
Youâre probably already aware of the many ways you can cut down on living costs each month.
Countless articles (and probably your Mum and Dad) tell you to skip your morning coffee or your avocado-on-toast to achieve your financial goals - but cutting costs doesnât have to mean missing out on those weekly pick-me-ups.
Whatâs important, is that youâre aware of where and how you spend your money now, so you can make informed decisions on where and how you choose to spend it in the future.
There are a lot of great apps on the market that will help you with saving, planning and budgeting. Some, including our free app allow you to link all your bank and savings accounts in one app to get a full picture of your finances.
After seeing how much you spend on that morning coffee once or twice a week, you might decide that thatâs actually a luxury worth keeping and to save elsewhere instead by switching to non-branded products, testing out a weekly shop at a cheaper supermarket like Aldi or Lidl or to start dyeing your own hair rather than going to the salon!
Cut down the costs you decide are unnecessary by keeping yourself in control and informed â just donât bury youâre head in the sand!
Saving for a rainy day
Youâll have heard the adage âtake care of the pennies and the pounds will take care of themselvesâ, and this certainly rings true when talking about your financial future. Itâs not necessarily about how much youâre putting aside, but itâs more the fact that you are putting something aside each payday, even if itâs a small amount.
As you become financially independent, it becomes your responsibility to safeguard yourself against lifeâs emergencies. Itâs important to build what we call a âcash bufferâ or ârainy day savingsâ to protect yourself in these situations.
You never know when an unexpected expense will come knocking on your door. Whether itâs your car breaking down, a broken boiler or an unexpected bill, itâs better to have a cash buffer to fall back on rather than struggling until your next payday.
Thereâs a surprising amount of people who donât have funds readily available for emergencies. A study in 2017 found that less than 40% [1] of the working age population have less than ÂŁ100 in their bank.
Navigating the world of credit
Now the likes of credit cards and overdrafts are available to you, itâs important to learn about how they can be used and what to watch out for. You may have heard that credit is bad, but that may not always be the case.
In a perfect world, no one would need a credit card, however, having a credit card or overdraft can help you build up your credit score.
A credit score is a tool that lenders use to help them decide whether you qualify for a loan or finance agreement like a mortgage or car finance.
Your credit score, which is essentially a number, is based on factors such as how many finance or credit agreements youâve had in the past, how much of your available credit youâre using, how many credit applications youâve made and even public records like the electoral roll.
The key to successfully managing credit is to always make sure you stay responsible and in control. A credit card shouldnât be something you rely on each month to make ends meet.
Hereâs some basic tips if youâre considering getting a credit card:
Only borrow what you need. Donât be tempted to borrow more just because itâs available, companies will often offer you more than youâve asked for.
Stick to 0%, where possible. In some cases, and depending on your credit score, you may be able to get an offer in which you pay 0% interest on the amount you borrow for a limited time. Once this timeframe is up, either pay off your credit card balance, or transfer to another 0% offer with a different provider
Pay it off. Always aim to pay off the balance of your credit card in full, at the end of each month.
Leave it at home. If you think you will struggle to avoid the temptation of spending on your credit card, donât take it out with you.
Weâve heard stories of people leaving cards with their family members or even freezing them in a block of ice to make sure usage is kept to a minimum and only when necessary.
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Itâs never too early to start planning for your retirement
âIâve only just started working, why should I think about my retirement?!â
Itâs always better to start saving early than to leave it until the last minute, so why should saving for your retirement be any different? It might not be in the forefront of your mind, but it will come around sooner than you think, so you donât want to be leaving yourself short.
When you pay into a pension like our Self-Invested Personal Pension (SIPP), you get money back from the Government in recognition of the tax youâve already paid on those earnings.
Thatâs free money, straight into your pension pot, and you donât have to make any special arrangements - depending on how much tax you pay and the type of pension you have, your pension company will automatically claim the basic level tax relief of 20%, back from the government for you. However, if you are a higher or additional rate tax payer, you will need to claim your additional tax back from the government yourself.
The sooner you pay into a personal pension the more time your contributions (plus the tax relief) have to build up!
If youâre not sure whether a SIPP is right for you, you can get free financial advice from us. Weâll tell you whether itâs in your best interests to start investing for your retirement or to save cash or pay off debts first!
Itâs not only your personal pension savings that will help you plan for your retirement.
As of 6th April 2018, all UK employees are automatically enrolled in the Workplace Pension scheme as long as they are aged between 22 and the State Pension age and earn more than ÂŁ10,000 a year.
Currently, the compulsory minimum matched pension contribution for employers is 2%, this goes up to 3% in April 2019. This means if you contribute 2% of your salary to your pension your employer will match your contribution â itâs essentially free money for your retirement pot!
Some employers will even match above the compulsory level, so make sure youâre aware of the workplace pension contributions your employer offers and make the most of it if you can.
We've answered the most common pension questions for you here.
Donât panic!
If you find yourself scraping the barrel at the end of the month, donât panic, and try not to turn to a quick-fix like a payday loan.
This is one of the biggest traps to fall into when youâre down on your luck, but in most cases, a pay-day loan will only make things worse and lead to a cycle of lending and penalty fees, no matter how easy and attractive the adverts may make them look!
Managing your money in your early 20s can be a minefield, but if you equip yourself with the right knowledge and stay in control, you should be able to plan for your future without compromising on too much in the present!
If you spend a little too much or end up struggling until payday, donât beat yourself up, just be sure to get back on track next month.