People often make their worst financial mistakes when they’re young, and this can be the worst time to commit them. However, when you’re young, you have the chance to start with a clean slate, which is an opportunity you’ll only get once in your life. You can use this time to set yourself to be comfortable when you quit the rat race, or even be able to retire early. This is why you need to take things seriously now, and start laying the groundwork for the rest of your financial life.
Here are some financial habits every young person should know about.
Start Building a Nest Egg
You should first start with the fundamentals. Everything starts with good savings. You need to have a strict savings scheme and stick to it.
Start with your emergency fund. It should equate to about three to six months of your current income. Then you need to start building a real savings account. We say real savings account since many people have one, but don’t actually use them the right way.
You could have a portion of your income directly deposited into your savings account. Better yet, you could have a savings account with a different institution and not get a card. This way, you would be forced to go through a teller to take any money out.
You could also start looking at things like ISAs. ISA stands for individual savings account and offers tons of benefits. For one, any funds that are deposited in them are tax-free. But what’s great is that you can invest from them and the income from your investment will be tax-free as well. There are many providers like willisowen.co.uk that will allow you to open an ISA account fast. You will then be able to start using them to hold investments in a more tax-efficient way.
Build Your Credit
This is the perfect time to build your credit, and if you play your cards right, this could completely change the trajectory of your finances for the future. The first thing you have to do is start showing credit bureaus that you exist. And to do so, you’ll need to start opening accounts.
However, one of the simplest things that you could do to increase your credit score instantly is to register on the electoral roll. Doing this single step could not only benefit your credit score but help you process credit applications faster as well. Another thing you can do to increase your credit score is get a low limit credit card and pay it in full every month. You could also get minor forms of credit, like a phone contract or a store card.
It’s also the time to not mess anything up. This means treating your bills responsibly. Missing them by even one day could be enough for your credit to be downgraded, so you’ll need to take the steps necessary for this to never happen. This means making automatic payments if you have the habit of forgetting them.
Keep Track of Your Spending
Another thing you have to do is start keeping track of your spending— and we mean everything! It doesn’t matter if it’s a new pair of shoes or a pack of gum, you have to start marking it down. The little things accumulate and start creeping on you, and you might be bleeding money left and right without even realising.
It’s also time for you to use the power of choice to your advantage. That means getting tough with suppliers and demanding better deals. If you’ve been with a certain provider for a while, ask for a discount on your current deal. This goes for things like phones, utilities, or car insurance. If they can’t, just look at the options out there and always try to use that choice as leverage.
Plan for Big Expenses
People often think of saving for their next holiday or something they want to buy, but you should be saving for big things, like a house. Having long-term financial goals is what will keep you focused and motivated. Make sure that you have a clear amount that you need to be saved for the down payment on your future house. Better yet, start looking at ways that you could invest in land and use it as an asset later on.
Think Your Purchases Through
Another very important thing is to learn the art of self-control. This can be easier said than done, but there are some simple tricks you can use to keep control of your spending. One is to keep track of them as we said earlier, but another thing you could do is wait before making non-essential purchases. Just waiting for a week will tell you if you actually need it or not.
These are all habits that you need to add to your daily routine if you want to ensure your financial future and be financially independent. Make sure to follow them to the letter and always look for advice from people who know more about money than you do.
