It’s not easy being a young adult. You’re trying to kick-start a successful career, establish strong relationships with friends and a love interest and ultimately, you’re aiming to build the lifestyle you want. A huge part of establishing yourself as a fully functioning adult is getting a hold on your finances. So, how can you manage your money while living a fast-paced and changing life?
These ten unmissable financial tips should help you to keep on top of and take control of your finances. Let’s get started.
1. Budgeting is paramount
Making yourself a budget is the most basic and essential part of managing your finances. There is a range of ways that you can create a budget, but ultimately, you’ll need to assess what money you have coming in and what you can afford to have going out.
It’s important to live within your means if you don’t want to get into financial trouble further down the line and creating and sticking to a budget will help you do this. A good approach to take is to spend roughly 50% of your earnings on essentials (rent/mortgage, bills, food, etc.), 30% on lifestyle (meals out, clothing, etc.) and save 20%. You don’t have to follow this method, but if you are unsure about where to start it’s a good one to try.
Be as realistic as you can when planning your budget. The essentials are, well… essential, but you’ll want to try and balance your finances so you can still save and have fun.
2. Have an emergency savings pot
We can never be sure what’s around the corner (hello, coronavirus pandemic) which is why having some savings tucked away for an emergency is always beneficial. Ideally, this should be at least a month’s salary and if you can have around 3 months of mortgage/rent payments saved this should give you some peace of mind.
Ensure your emergency savings are in an account where you won’t touch them and avoid the temptation to just spend it all on a holiday. This way you’ll always be prepared for any emergencies or sudden loss of earnings.
3. Track what you are spending
Even when you have a budget planned out if you don’t keep track of what you are spending your money on it’s easy to start breaking your budget. Simply looking at your bank account towards the end of each month is a good way to keep an eye on things.
There are also plenty of great budgeting apps available that will help you to keep an eye on your spending. Monzo, for example, is a popular bank choice where you can put your transactions into spending categories through the phone app.
4. Meal planning saves money
Do you make a list before going to the supermarket? Have you planned what you’re going to eat for the week? We spend a fair amount of money on our food shopping and making a plan in advance will ensure that you only buy what you need. Another positive to doing a weekly shop at a large supermarket is that you’ll avoid the higher costs at local convenience stores.
5. Use price comparison websites
- Phone contracts
- Gas and electricity suppliers
- Car insurance
- Home insurance
- Travel insurance
- Life insurance
More often than not, you can save money by switching suppliers and checking what else is available when you reach the end of your contracts.
6. Get yourself a credit card
Credit cards may feel like a scary hole where you can easily get into debt but getting one and using it wisely will help you to build up a good credit score. When it comes to getting a mortgage or financing a car, having a good credit score is vital as lenders will want to know that you are reliable and able to pay them back.
If you do get a credit card, make sure you only spend what you know you can payback. You should also set up a monthly direct debit to ensure that you don’t miss a payment and get hit with an interest charge.
7. Cancel subscriptions you aren’t using
When was the last time you went to the gym? Did you use your Amazon Prime at all last month? If you have memberships to services like these that you aren’t using, it’s important to cancel them now. It’s easy to let these payments run on because you think you might use it soon, but you will save more money if you properly assess whether you are getting value from your subscriptions.
8. Prioritise paying off high-interest debt
If you already have debt that you want to pay off, you must prioritise what you are paying. For example, if you have a payday or short-term loan that you owe, these are likely to have higher interest charges, therefore, you should pay them as soon as you can.
If like many young adults, you have student loan debt you won’t want to prioritise paying this or making extra payments. This will come out of your income when you are earning enough (at least £25K).
9. Keep your finances separate
Try to avoid tying your finances to anyone else’s, for example by co-signing a loan or bill payments for a friend with bad credit. This would make you liable for payments they can’t make which could end up hurting your credit score.
10. Plan for the future
Making a plan for what you want to save in the next 12 months is great, but how much have you planned for the future beyond that? Planning for the future should include thinking about your emergency savings pot and even retirement (although it may feel a long way away).
When you turn 22, a percentage of your earnings should start going into a retirement fund automatically. You’ll be able to see the specifics of this on your payslip. You will also have the option to increase your pension contributions, however, it’s not advisable to decrease them.
Bringing it all together
Managing your money as a young adult can feel like a minefield. Why didn’t they teach us more about this in school? Hopefully, these financial tips will help you to feel more confident about managing, planning and budgeting your money going forward.