If I could turn back time: Money advice for your 20 year old

If I could turn back time: Money advice for your 20 year old

What money advice would you give your 20 year old self?

Was there one big money mistake you made in your twenties that makes you wish you could turn back the clock?

Or are you in your twenties now and want to know what money decisions you should be making now?

Whatever your situation, nothing beats some expert advice when it comes to an area where most Australian’s feel a little lost, their personal finances. 

RateCity talked to five of Australia’s leading money experts to get their advice on what they would have done differently in their twenties now that they’re older and wiser.

Don’t put all your eggs in one basket

Don’t let your youthful enthusiasm get the better of you when it comes to investmenting warns Mark Bouris, Executive Chairman of Yellow Brick Road Wealth Management.

“I made a big investment mistake in my 20’s,” says Bouris, “a stockbroker friend of mine put me onto a ‘hot stock’ and I put a lot of money on it.

“It tripled in price quickly and then crashed to 0.3¢. My friend was bemused that I’d left all my money in when the share price rose so fast.

“He – like other professional investors – sold down parcels of the shares as they took-off, so some gains were locked in as the shares increased.”

Although with every mistake comes a lesson and Bouris says the experience was definitely a learning curve.  

“There were many lessons that I learned from this episode that I wish I’d been told before such as you get returns from time and risk. If you want sustained returns from investments, over long periods, you must diversify.”

“Shares, property, fixed interest and your own business may all be good investments, just don’t put all your money into one of them,” he warns.

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Retirement is closer than you think

It seems that even the experts let their immediate pleasure get in the way of future gains when they first started out their working life.

“I wish I’d salary sacrificed at the age of 20,” says Effie Zahos, Editor at Money Magazine.

“A lot of young people just put it in the basket of retirement is so far away, I don’t care or it’s not my problem but there’s an interesting story that I always remember.

“When I graduated from uni…I was taken as a graduate trainee for Westpac, and my mate Darren and I were sitting next to each other and were going for the same job. We got it and the financial advisor came around and said look, you should be salary sacrificing some of your income.

“I was like no way but my friend Darren said yeah I will and I think of the top of my head it was $50 he was putting in per pay and we were paid fortnightly,” recalls Zahos.

By her calculations, if Darren had continued with the same salary sacrifice scheme to this day, he would be retiring about 2.4 years ahead of her.

“I’m salary sacrificing now right up to the max but I’m older and wiser and it’s not too late but it would have been a lot easier had I put even just $10 away when I got my first job.”

Save for a rainy day

Zoe Lamont, CEO and Founder of 10thousandgirl.com.au, also advises to jump on the savings bandwagon early.

“Start squirrelling, even little bits of money away as soon as you start earning it,” she advises, because there’s never a better time than in your twenties to go on an adventure.

“I know I had this when I was in my 20s, sometimes all of a sudden you realise you hate your job, and feel like you don’t know what you want to do with your life.

“I think because I had some buckets of money saved all of a sudden you can go overseas for a year or do some study or work in a job where you’re not as well paid but you’re surrounded by awesome people and learning lots and building a career you love.”

It’s the savings that you tuck away early on that allow you these freedoms says Lamont but it’s not only about the short term. 

“Small regular saving and investing now with compound interest can mean magic down the track,” Lamont says.

“Say when you turn 20 you start putting $50 a week into a managed fund earning 8% returns, when you retire at say 65, you’ll have an extra $1.1 million – that’s on top of your super and any other investments you may have.

“Most importantly, if you’re doing these things you’re practicing and instilling key money habits that will set you up for life.”    

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Put down the credit card

For Marie Mortimer, Managing Director at Loans.com.au, learning to live within your means during your twenties is key to coming out financially unscathed.

“Your early 20s are generally a costly time of your life, although not necessarily an expensive one,” says Mortimer.

“Usually, people making the step from their teens to their 20s are studying, working part time, doing apprenticeships, and otherwise just not earning all that much.

“Often, if they are still living at home or in a share house, their living expenses wouldn’t be that high, but add in running a car, phone and internet contracts, gym fees, and a fair slice of nightlife, the money doesn’t go that far, particularly when there’s not a lot of it to begin with.”

This, she warns, is the equivalent of a personal finance danger zone.

“It is easy at this stage of life to rack up a high-interest credit card debt, including store cards, whether out of necessity or being impulsive.

“A lack of financial knowledge can lead to a debt that takes years to pay back and any defaults go on your credit history. Spend less, and if you must have it, layby it.”

Money Mentors

While it’s great to learn to do it yourself, sometimes all you need is some inspiration in the form of a money mentor says Michael Yardney, Director at Metropole Property Strategists.

“Find a mentor, find a model, somebody who has done what you want to do and stand on their shoulders and look above them to see where you can go rather than trying to invent yourself.”

Also, when starting to invest in the property market, keep in mind that even the best laid plans can come undone.

“There’s always an x-factor, something out of the blue that you weren’t prepared for. The one last year that surprised a lot of people was two interest rate drops that actually pushed the property markets up,” says Yardney.

“Sometimes the factor is positive but sometimes they’re negative. There are also local things or sometimes things like international terrorism that come out of the blue or the Global Financial Crisis.

“So always be prepared for something out of the blue that makes your best laid plans suddenly run into challenges.”  

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Learn more about savings accounts

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

How can I get a $4000 loan approved?

While personal loans and medium amount loans don’t offer guaranteed approval, there are steps you can take to help increase the likelihood of your application being approved, including:

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Can you set up direct debits from a savings account?

It’s not usually possible to set up a direct debit from your savings account to cover ongoing expenses or bills, as savings accounts are structured around growing your wealth by earning interest on regular deposits, and discouraging withdrawals.

Some transaction accounts allow you to set up direct debits and also earn interest, though you may not enjoy as much flexibility as a dedicated transaction account, or get as high an interest rate as a dedicated savings account.

How do I open a savings account?

Opening a savings account is a relatively simple process. If you’ve found an account with a suitable interest rate, you’ll just need to get in contact with your chosen lender via a branch, phone call or hop online to begin the process. 

You may be required to provide:

  • Personal details, including identification (driver’s license, passport etc.)
  • Tax file number
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What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

Who has the highest interest rates for savings accounts?

As banks frequently change their rates, the most accurate way to know who currently has the highest interest rate is to use a savings account comparison tool.

How does interest work on savings accounts?

The type of interest savings accounts accrues is called compound interest. Compound interest is interest paid on the initial deposit amount, as well as the accumulated interest on money you have. This is different from simple interest where interest is paid at the end of a specified term. Compound interest allows you to earn interest on interest at a higher frequency. 

Example: John deposits $10,000 into a savings account with an interest rate of 5 per cent that he leaves untouched for 10 years. At the end of the first year he will have $10,512 in savings. After ten years, he will have saved $16,470.

What is the interest rate on savings accounts?

As banks frequently change their rates, the most accurate way to look at interest rates on savings accounts is to use a savings accounts comparison tool. When you look at the savings rate check what the maximum and minimum rates are. Often banks will offer you a promotional rate for the first few months which is competitive, but then revert back to a base rate which can sometimes be less than inflation. Ongoing bonus rates are often a safer bet as they will keep rewarding you with the maximum rate, provided you meet their criteria

Can you direct deposit to a savings account?

Yes. You can make one off payments or set up regular direct deposits into a savings account. This can be organised easily through online banking or by making deposits in a branch. Talk to your lender to find out the easiest way for you to set up direct deposits.

What is a savings account?

A savings account is a type of bank account in which you earn interest on the money you deposit. This makes it one of the easiest and safest investment tools.

Can I overdraft my savings account?

A lot of savings accounts won’t let you overdraw. Some will allow this feature but you’ll need to apply first. It’s best to read the fine print and check with your lender whether this is a feature they offer. It can be a helpful addition, but as your lender can charge you a fee as well as interest for going into negative numbers, it’s best to avoid overdrafting when possible.

Can you have a joint savings account?

Yes. Joint savings accounts can be useful for two or more people wanting to combine their savings to meet shared financial goals, including spouses, flatmates and business partners.

Some joint savings accounts require all parties to sign before they can access the money. While less convenient, this extra security can help encourage all parties to meet their shared financial goals.

Other joint savings accounts allow any of the account holders to access the money. These accounts can be convenient for financially responsible couples that trust one another implicitly. 

How much money should I have in my savings account?

A good rule of thumb when working out a minimum balance for your savings account is to make sure that you’ll earn more in annual interest on your savings than what you’ll be charged in annual fees.

If you’re saving with a specific goal in mind, prepare a budget so the interest you earn on your deposits will help you efficiently reach this goal. Online financial calculators may be helpful here.