Gaining control of your finances as early as possible has endless benefits, from short-term savings on essential spending to safeguarding and supplementing money for the future. Follow these four steps throughout your twenties and it won’t be long before you’re financially on your own two feet.
1. Minimise debt and build your credit score
Start by looking at ways to manage your debt more effectively. When left unchecked, money owed can become unsustainable, requiring parental help to pay off or dragging you into more debt. It can also negatively affect your credit score which is key to getting good interest rates on future borrowing such as getting a mortgage or furniture financing options. Having a good credit score is also useful in the short term, helping you find affordable young driver insurance with superior coverage and giving you access to better deals for phone and internet connections.
Prioritise paying off ‘bad debt’ such as instant loans with high interest rates and ensure you pay off more than the monthly minimum charges on your credit card spending. Long-term debt with fixed interest rates such as your student loan doesn’t have to be settled straightaway, but make sure you’re sticking to your agreed repayment plan.
2. Establish a budget – and stick to it
Creating a budget is the easiest and most effective way to stay on top of your finances – but it’ll only work if you actually use it.
Work out how much you spend on essentials each month, including borrowing repayments, and set this against your take-home income (your salary after tax). This will give you a clear idea of how much you have for additional spending and savings, helping to prevent you from living beyond your means. While it will differ slightly for everyone, you should typically aim to save 20% of your monthly earnings.
3. Invest your money wisely
When you’re separating funds for the future, invest your money wisely. Without making the proper arrangements, your savings could actually lose value over time due to rising inflation.
Begin by analysing your banking. If you’re keeping everything in one current account, open a separate account designed specifically for saving and set up a standing order to pay in money monthly. These accounts have higher interest rates which keep up better with inflation in exchange for keeping your money largely or completed untouched for set periods. Choose between ISAs for tax-free saving, fixed-rate investment accounts or standard savers with greater flexibility on withdrawing your funds.
4. Plan early for major life expenses
Building up the funds for big purchases such as a car or your first home can take a long time, and factors such as a new job can make these essential to your lifestyle in a matter of days. Get ahead of the game and plan early for these vital expenses so you can comfortably afford them when the time comes.
When saving, split your funds into an emergency pot to cover short-term financial demands like insurance and money for the future. Consciously saving in this way will give you peace of mind that you’re growing a substantial deposit for major life purchases without it negatively impacting your financial health.
