At this stage of life, a mortgage seems like a life sentence and retirement is for really old people. So what should you be doing with your money? Here's your "to do" list for the decade.
- Aim to learn something
"One of the best things you can do at this stage of life is to look to improve your financial literacy," says Matthew Walker, director of Sydney's WLM Financial Services Pty Ltd. "Read books, take a course, search the Internet or talk to people with experience."
- Think about tomorrow
So you're scrabbling to buy your lunch today, let alone the rent at the end of the week? While the big ticket tomorrow items such as a mortgage, superannuation and all that other grown-up stuff might seem a long way off, the truth is that it's never too early to set up some shorter term goals. Saving for a car or a holiday is a great way to fast-track a sense of achievement — and it sets up an invaluable habit. Walker suggests putting aside 10 percent of what you earn as a start.
- Get a habit
Speaking of habits, saving isn't the only one you should be fostering. "Getting together a budget or money plan is the best way to get into the habit of living within your means," say Sheila Freeman and Helene Richards, co-authors of Money Management for Women (UNSW Press).
- Deal with the 'credit monster'
While it may make you feel better, binning your credit or store card statement without opening it is a recipe for disaster. "Aim to pay off the cards," say Freeman and Richards. "Hit the ones with the higher interest first and always make more than the minimum repayment." It wouldn't hurt to take a look at your spending habits at the same time — earning your first decent pay cheques can bring out the shopaholic in all of us, but stopping for a moment to ask yourself if you really need that 75th handbag might make a difference to your bank balance.
- Stay at home
If it's at all possible (and pleasurable), consider staying at home with the parents. You won't be alone — heaps of 20-somethings make the financial decision to stay home and get some savings together. - Try to do a lot with a little
When you're in your first job and earning what seems like peanuts, it can be hard to get excited about investing. Don't you need to be rich for that? In fact, you need less than you think to get some wealth creation strategies underway. "If you have some money saved, what you do with it depends on when and how you want to use it," says Walker. "If the goal is short-term, invest it in cash, but if it's a longer term, a managed fund or even direct shares might be an option. Whatever the case, look at the opportunities out there. If nothing else, you'll learn from your experiences (positive or negative)."
- Work out what you want to be when you grow up
While there's no denying that this is the time for experimentation, it's also true that wealth is generally a long-term project. For that reason, it's good to be earning regular cash for as long as possible. Lying on the couch daydreaming about getting rich is not an effective strategy. "Getting established in a career and earning a regular wage should be one of the financial focuses of your 20s," says Freeman and Richards.
- Read the fine print
"These days, credit is too easy to come by," says Walker. "Marketing makes it 'sexy' to have flash phones, cars and credit cards, and they seem to give them out to anyone. Unless you understand your obligations and/or are disciplined, you can wind up with large bills that can cripple your cash flow."
Freeman and Richards agree. "Mobile phones can be a particular problem. Always check the fine print before entering into a contract and be sure you can sustain it financially."
- Make time work for you
The beauty of being in your 20s is that time is on your side. "People this age can make mistakes and recover," says Walker. "They have time to make more money and save; they have time to compound investments over a reasonably long time-frame." Which means that your savings have a long time to grow into something worthwhile. And the same goes for superannuation — that $10 a week you put in now could make for a very comfortable (or even early!) retirement.
- Understand your money
The fact is, you're not a kid any more, whether you're 20 and one day, or practically 30. Your finances are your responsibility and there's probably not a Prince (or Princess for that matter) waiting to sweep you off your feet and out of a financial disaster zone. "Focus on learning the true value of money and how to be responsible for your own," says Walker. For more information on WLM Financial Services Pty Ltd, visit www.wlm.com.au. To download an updated version of Money Management for Women ($19), visit www.sheilafreemanconsulting.biz
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