Most young adults in their 20s are concerned with kick starting their career, enjoying their lifestyle and taking eye-opening and bucket-list-worthy overseas trips.
Thinking about their personal financial goals is often low on the priority list. Money experts, however, say you have no time to waste. Adopting smart money habits before you hit 30 has the power to transform your financial future – and it doesn’t have to be hard.
Here are five basics of money management you can start in your 20s that will set you up for life:
1. Learn to budget
It doesn’t have to be a strict budget, but you do have to get into the habit of monitoring your income and spending habits if you want to get off to a good start. It’s as simple as keeping track of your spending and making sure you don’t live beyond your means – that’s a great skill to have at any age.
The golden rule of money is to never spend more than you have coming in and a budget will help you visualise how you can make that happen.
“Generation Y have a very good lifestyle and if we put them on a strict budget, it will fail every time,” says Financial adviser Marc Bineham.
“If you write down your income and expenses every month, when it’s in black and white it’s easy to see if there will be any problems and you can take steps to prevent them.”
2. Avoid credit card debt
Australians owe more than $32 billion on credit cards – an average debt of $4385 per credit card holder. The average cardholder pays around $737 in interest per year.
“Credit cards are wonderful things to have, provided they are paid in full each month. If you can’t pay the full amount, you are living beyond your means,” says Greg Pride, financial adviser with Centric Wealth.
If you do find yourself in credit card debt during your 20s don’t delay reigning it in. Transfer your debt to a 0 per cent balance transfer card and pay it down before the interest free period ends.
3. Start saving early
Bineham recommends developing a savings habit with a monthly amount you won’t miss – he suggests around $100 per month depending on your income – and setting up an automatic deposit into a high-interest savings account on the day you are paid your salary.
“It will be money you won’t notice but it will grow in the background with compound interest,” he says.
“The added bonus is that you will be able to demonstrate a disciplined savings habit when you go to the bank for your first mortgage – it’s amazing how much bank managers love to see a history of savings – and it can also be a deposit for a home.”
4. Build an emergency fund
Things can go wrong – you may lose your job, your car may need expensive repairs or you may need to fork out a large sum for an unexpected emergency. Having a buffer can bail you out in such disaster scenarios, and help ensure you don’t stumble financially and rely too much on credit cards.
“It’s important to have access to emergency funds to avoid going into debt if something goes wrong,” Bineham says.
“For under 30s, about four to six weeks’ worth of salary would be worthwhile.”
5. Set financial goals
You can start with short-term goals – paying off your credit card debt or saving for a holiday – before graduating to longer-term goals, such as building a deposit for a home or even start thinking about a retirement plan. The benefit of having financial goals is that they enforce discipline and help you keep track of your progress.
“If you have a desire to own your own home – and that’s something that’s important to us in Australia – start putting away money towards a deposit as early as possible,” Pride advises.