Making a financial plan may be the last thing on a very long list of priorities for people in their 20s.
But it could also be the key to achieving life’s top priorities. Dreams of travelling, buying a property and saving for a wedding can only come true with a strong savings plan, experts say.
Here are the three key steps people starting out should take to secure their finances for the present – and all the way to retirement.
Financial planner Chris Browne, from Rising Tide Financial Services, says wise savers start early to set themselves up for later in life.
“They can stay ahead of the pack by having clear financial goals and starting and sticking to a budget when they secure their first decent job,” he says.
“Also, we find that the early bird catches the worm; so if they’re prepared to set aside a small amount for a rainy day it creates great habits for down the track.
“Whether it’s a small but regular savings plan invested into a high interest bank account or a managed fund, it all helps.”
Another aspect to consider is superannuation. Make sure you only have one account, and remember any extra you put in now will go a long way towards your retirement. Read more here: How to kick start your super in your 20s
Avoid debt traps
Be wary of credit cards, high-interest personal loans, payday lenders and in-store finance. They seem tempting when you really want that new car or phone, but financial planner Michael Miller, from MLC Advice Centre, says easy credit often lands young borrowers in hot water.
“If you are buying items that you can’t afford from your income now, it means that you’re going to have to pay for them later – and with interest,” he says.
“This isn’t to say all debt is bad. Spending on education and training can also have a great pay-off over the long term.”
A good question to ask yourself, says Miller, is ‘will the asset last as long as the liability?’.
If you take out a five-year debt to cover an asset that you’ll only use for three years, such as a laptop, then it simply does not make financial sense.
On the other hand, if you’re borrowing through HECS-HELP to fund a tertiary education it can be an asset you are going to use for many years to come.
Develop good financial habits
Starting good financial habits helps pave the way ahead and make those costly hurdles easier to jump.
A serious financial hurdle for those in their 20s is the rising cost of housing affordability. Residential property prices rose in every capital city in the 12 months to June this year, Australian Bureau of Statistics show.
So it’s no wonder many young savers opt to stay at home, says Chris Browne.
“Many young Aussies are staying at home longer allowing them to save a decent deposit and leaning on mum and dad to help get them into their first home or investment property,” he says.
“Common ways their parents are helping are; matching their savings dollar for dollar, paying for university fees upfront so they’re not burdened by Help Debt, or being personal guarantor on their loan.”
To get ahead, start building financial routines you can rely on in the future, says Miller.
“Get yourself into the habit of saving $5 a week now,” he says.
“No, it won’t have you on a round-the-world holiday by the end of the year or a sports car the next, but it will mean that next time you get a pay rise you’ll find it just a little bit easier to bump that saving up a notch to say $15 a week.
“Eventually you will find it just becomes automatic – and those good habits will give you a lot of options and flexibility in the future.”