Top 5 money tips for under 30s

Top 5 money tips for under 30s

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.

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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.

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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 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.

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 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:

  • Fulfilling the eligibility criteria (providing ID, proof of residency, proof of income etc.)
  • Checking your credit history (you can order one free copy of your credit file per year, and make sure that there aren’t any errors that may be bringing down your credit score)
  • Comparing carefully before applying (making multiple loan applications can mean having your credit checked multiple times, which can look bad to some lenders and reduce your chances of being approved by them)

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
  • Employment details

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.