Many twenty-somethings feel like the world is at their feet. At last your money is your own - and there’s an endless buffet of spending choices. Paradoxically, it’s not your spending choices but the saving choices you make now that will most influence how the rest of your life goes.
Improve your ability to earn
Your twenties are the best time to improve your future earning ability by developing skills that sell. Your own education is one of the best investments you can make – provided you don’t over-spend and that you gain qualifications that are in demand. Embrace the wisdom found in the popular Chinese saying, “Gold is to be found in books”.
This is a foundation building phase where expectations are low and opportunities high – so seek out professional development wherever you can.
Make regular updates to your online portfolio to show off your skills, achievements and capabilities. Now’s also the time to clean up your social media history: the red cups and pouty selfies of your younger years may be funny mementos, but to current and future employers, they speak volumes of your character.
Today’s twenty-something is entering a volatile marketplace – but done right, you can safeguard against the financial blow of job loss by looking for multiple income streams from a variety of sources. By spending a couple of nights a week starting an eBay store, doing some bar work or driving an Uber, you can boost both your savings and your skills.
Honing your communication skills and getting some basic business smarts will set you up well for the future.
The 2016 HILDA survey shows that graduates see their pay rise more rapidly as they gain work experience – and graduate pay grows rapidly for longer than it does for non-graduates. For all workers, your biggest pay rises typically come in your first decade of work.
Balance the experience versus savings trade-off
There’s a big world out there and it’s beckoning you. Your twenties are a great time to travel cheap. The golden rule? Never go in to debt to fund an adventure.
Travel insurance can protect you from potential financial ruin – unexpected medical bills while travelling through the US could cost more than a family house – so make sure you’re adequately covered. Delay your trip by a couple of months to stow away some money for your return from your intrepid journeys and while you’re off experiencing the world, that nest egg will grow - a high-interest savings account is the ticket.
The best way to balance life experience with life savings is to set up a practical budget. James George, author of Financing Your Twenties: Your Twenties - Your Future suggests your pay cheque should be budgeted with a “50-30-20 split: 50 per cent for your expenses, 30 per cent for your desires, and 20 per cent for your savings.” To save for a big-ticket desire such as overseas travel, you can reduce your spend on day-to-day desires and allocate more to savings.
Family and society attitudes to the role of their twenty-somethings will vary widely between cultures and even within cultures.
Some communities expect young men and women to live with their family until they marry, allowing them to focus on saving while still at home, while others expect adult children to leave the nest early – as per the oft-quoted rhyme, “24 and out the door”. Different cultures in Australia will have remarkably different financial priorities for those in their twenties.
A 2014 Australian Bureau of Statistics report on Marriage and Divorce in Australia found that the median age in the wider Australian community of first marriages continues to get older with 31.5 years for males and 29.6 years for females – but age of marriage and moving out of home are now linked less than ever before.
When traditional-culture families start becoming Westernised, expectations about education, living at home, contribution to household wealth, gender roles, marriage and having children – start to change.
Laurie Nowell from the Adult Migrant Education Service says that multi-generational households are common in many migrant families, particularly those from countries without social welfare structures. “But as the younger generations come through and are exposed to Western culture, they tend to remove themselves from those traditional structures.”
Nowell says that, for recent migrants to Australia, there’s also huge emphasis on education to get ahead. “People from very poor backgrounds who are new migrants to Australia value their financial security and pass that on to their children,” he says. “Typically they see the greatest investment of their money is in their children’s education.”
Live within your means
The newfound freedoms of a young adult can tempt some to try to keep up with peers who buy a super widescreen television or designer dress and shoes on credit. Don’t fall for it – that’s a short-cut to spiralling debt.
Instead, live within your means, keep your spending to a minimum and make frugality an art form. There’s nothing wrong with buying second-hand – and you’ll be doing the planet a favour, too.
That flash car or latest bit of must-have technology that you crave, if paid for on credit, is not an asset and may be the single greatest drain on your personal finances preventing you from getting ahead.
There is no such thing as easy money – delayed gratification is key to success. If you want something – save for it. Set a goal, and pay with savings not with credit, reducing the impulse urge to splurge.
Get a savings addiction
Get hooked on saving and make it an integral part of your financial plan and budget. Make sure you have an emergency fund – not just the bank of Mum and Dad – to cover you when things get tough or the inevitable unforeseen mishap happens. Use banking technologies to make saving hassle-free and to make your money grow.
Should I pay off my HECS Debt?
That’s a personal decision. Some see their university debt as the best loan they will ever have. You don’t have to repay it until you can afford to and the current interest rate is so low that you may be able to get better returns by investing in other opportunities that yield a much better return.
If HECS is one of several debts – pay off higher interest debts such as credit cards and personal loans first. If you can’t cope with a HECS debt hanging over you until your earnings match the minimum, consider making some voluntary contributions to reduce your long-term debt – you’ll get a discount when you pay early, too.
If you only do one thing, it should be ...
Avoid exposure to credit and debt vulnerability by knowing the difference between an asset and a liability. That flash car or latest bit of must-have technology that you crave, if paid for on credit, is not an asset and may be the single greatest drain on your personal finances preventing you from getting ahead.
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