Your twenties are an exciting time. Leaving home, choosing a career, buying your first house or even starting a family, many of us spend this decade ticking off one milestone after another.
With so much to do, money is often tight. But setting aside a little of your disposable income to meet your financial goals will stand you in good stead for the future.
Here are four easy ways to be financially savvy in your twenties.
1. Start saving as soon as possible
A recent survey found that over half of under 30s in the UK have no savings at all.
This is hardly surprising. The average young person spends 45% of their income on rent, rising to almost 75% in some parts of London. With such high living costs, we understand that it can be hard to set anything aside.
Nevertheless, saving even a small amount each month can pay off greatly. Savings accrue compound interest – something Albert Einstein reputedly called the eighth wonder of the world.
The sooner you start putting money away, the more time it has to grow. People who start saving in their twenties will find themselves in a much stronger position as they enter the next phase of their lives.
2. Set achievable goals
When it comes to saving, having something to aim for is a great way to motivate yourself. This could be anything from paying off your credit card to putting down a deposit on your first house.
Work out how much you need and then set a deadline for accomplishing your goal. This will allow you to calculate how much you need to save each month to stay on track.
A good first milestone is to try building up a three-month expenses buffer. Work out how much you would need to survive for three months without any income, and then aim to increase your savings to this level.
3. Use your ISA allowance
Whatever your goals, opening an ISA is a good place to start. ISAs allow you to save up to £20,000 every year tax free. This means that you won’t pay income tax on any interest that you accrue.
Some ISAs offer a fixed rate of interest over a set period of time. This rate is often preferable to more flexible accounts, but only if you don’t touch the money. If you choose this option, be careful to only put in as much as you can spare.
Interest rates are almost universally low at the moment and for longer-term savings you may wish to consider a stocks and shares ISA, but make sure you understand the risk and reward of doing so.
4. Don’t forget about your pension
Retirement might seem a long way off, but it pays to think about it in your twenties.
Once again, the concept of compound interest or growth applies. The earlier you contribute to your pension, the more opportunity it has to grow for your retirement.
Most employers will automatically enrol you in their pension scheme. It’s a good idea to check what you are contributing and increase the amount if you can.
If you are self-employed, you can set up a personal pension through an insurance company or investment platform.
Putting money into your pension pot restricts your access to it until retirement, but the Government does incentivise this long-term thinking.
Pension contributions are eligible for tax relief, and any growth in the value of your pension is largely tax-free.
We’re here to help
We want young people to have the best possible start in life. Whatever your circumstances, we can offer personalised advice on managing your money in your twenties.
Get in touch today to find out more.