It’s rare to find a school that teaches money management and we often don’t learn how to manage our finances from our parents. That can leave young people confused and bewildered about how to start looking after their money.
The easiest way to become good with money is to start young, so that as soon as you start work you know that you have your spending under control and you can start saving right away.
Here’s some of the best advice for under 25s on how to manage your finances.
Learn to exercise self-control
This is the big one, really, and if you learn to have self-control from a young age, you’re unlikely to ever run into financial problems. The bottom line is learning how to delay gratification; saving up for the things you want to buy and not purchasing on credit not only teaches you the value of goods and how much effort goes into buying them, but it also teaches you that you don’t need everything now.
It’s better to have the money in hand before making a purchase, even if that means waiting a couple of paydays to buy those shoes, jeans or the electrical gadget you’ve got your eye on.
You’ll learn quickly that no one is responsible for your finances except you. You can get help and advice from others, but don’t always assume that the wisdom they offer you actually works. What’s right for one person isn’t right for everyone.
Read up on money management as soon as you can and start tracking your expenditure right away. Set yourself limits for spending and goals for saving and stick to them rigidly. Understanding money management is not only about responsibility for your finances; it’s also ensuring that only you have control.
Be careful about lending to others, spending time with people who spend like there’s no tomorrow, forcing you to try and keep up, and always be 100% sure before opening a joint account with a significant other; it can seem like a mature step, but if your partner isn’t so money savvy, you could watch your hard-earned savings drain away.
Know your spending habits
Most of us watch money come in and leave our account without paying close attention to it, and then we wonder why we never have any. Don’t make the same mistake. Either pay close attention to your online bank statements or use one of the many modern smartphone apps that allow you to track each and every penny you spend.
Split your spending into categories like bills, food and entertainment, and be ruthless with yourself. If you see that you’re overspending in one category, it’s either time to shop around for a new provider or curb your unnecessary and frivolous spending. Your future self will thank you for it!
Save for the short and the long-term
There are two kinds of savings: a cushion and a nest egg. The former is your emergency fund, used for short-term emergencies and unexpected costs. The latter is you saving for your future, whether that’s travel, a home or your retirement.
Don’t confuse the two; there’s nothing more disheartening than watching the balance of your savings account drain away due to an unexpected car breakdown on similar. Open two separate savings accounts and only use each for its intended purpose. One is for emergencies and the other shouldn’t be touched.
Get credit early, but use it wisely
It’s a good idea to take out a form of credit early and get on the voter’s roll. Both of these will activate your credit report, meaning it will be easier to take out credit in the future. However, learn to use credit wisely.
It’s easy to take out a credit card for the purposes of opening a credit report only to max it out with over-spending. Instead, consider cutting up the card or ask that your provider doesn’t send you one in the first place. Alternatively, set yourself strict rules for using the card and only use it if those rules are met.
If you find yourself in short term difficulty, you might think that it’s better to use a credit card instead of a payday loan. However, because of the lower interest rate on the card and the resulting low monthly payment, you can let a small purchase build up over time. With a payday loan, the high interest rate won’t be a problem if you clear the balance as soon as you can on your next payday.