Early adulthood can be a flurry of activity. Following on from A-levels, there’s higher education such as university, and then getting a first job, buying your own home and starting a family.
With such a lot to think about some forward planning towards key milestones can really help achieve them.
With age comes wisdom, but so do the bills.
The older you get the more responsibilities you take on – and the expenses come rolling in. Despite these costs draining bank accounts every month, there are numerous steps that can be taken to improve your financial position over time. Teaching young people how to structure their finances so they can save money and invest brings them one step closer to financial security.
So, let’s explore the different stages of early life and the steps that can be taken to maximise your own or your children’s wealth and financial wellbeing.
The turbulent twenties - time to build financial resilience
In my experience, the “turbulent twenties” is a time of education and career building – when your income, hopefully, starts to increase. However, expenses also start to rise as spending on discretionary items and life experiences can get out of hand. Especially when lifestyles are all too often fuelled by expectations generated by social media. This can, unfortunately, lead to acquiring significant expensive debt such as credit card debt, which should be cleared as an absolute priority.
For someone in their twenties to get through this turbulent decade, it's important they think about and define their priorities. Then steps can be taken with savings and investments to make these goals a reality.
Whatever these goals are, they are likely to hinge on financial discipline. Once the bills are paid, the important next step should be setting aside monthly savings. Sticking to your guns and not dipping into these will provide the foundation needed to bolster your personal finances in the coming years and decades. Regardless of how important that pair of new shoes or holiday seem. By putting a financial plan in place you can start making your money work for you rather than living from one payday to the next one. Follow the link for more financial tips in your twenties.
Surplus-building thirties - key financial decisions to be made
As thirty-somethings see their income increase it is often the time to make bigger decisions, such as buying a home, marriage and building a family. Student loans are currently charged at least at RPI (the Retail Prices Index measure of inflation), depending on the type you have, which at present is 4.8%. This may still be a major financial issue into the future.
This is where older generations can really make a difference to those they love. An interest-free loan from parents or grandparents can make a major difference to a graduate’s finances. Instead of paying interest and capital the student just repays the value of the loan back to their family member. By eliminating these high interest repayments, and the compound interest that could result, the length of the loan can be reduced, clearing the debt early.
Alternatively, a part of the budgeting exercise could involve redirecting monthly savings into your student loan, therefore reducing the amount outstanding at a faster pace.
As surplus funds build during the decade it’s important to use annual Individual Savings Account (ISA) allowances, currently £20,000 each, to protect your investments from capital gains and income tax. This is a good way to build a mortgage deposit.
If you haven’t already done so, a priority is to make pension contributions into your company pension scheme to start saving for retirement as early as possible. The benefits of which include:
- Tax relief on your pension contributions at your highest rate of tax
- Tax-free compound growth within the pension fund
- Employer contributions into a workplace pension scheme, which could be matched or be higher than your contributions
However, the funds cannot be accessed until the age of 55 (rising to 57 by 2028).
Although this won’t seem like an immediate priority, you should generally start and maintain this form of investing as far as possible as it is often the most efficient way to provide for retirement by some distance. Plus, the earlier you begin the more years of compounding investment returns you have, and this can make a huge difference to the size of your retirement pot.
The most important thing is to start teaching young people the value of managing their finances. The earlier they realise that disciplined spending habits and realistic budgeting can turbo-charge their wealth the better.
Nothing on this website should be construed as personal advice based on your circumstances. No news or research item is a personal recommendation to deal.
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