Making Good Financial Decisions at a Young Age
Our society’s youth – rarely does the mention of this demographic spark visions of careful financial management and wise decision-making. But why not? There is no reason people can’t begin to lay the foundations for a viable wealth creation strategy from a young age, and education and planning and good financial decisions are the keys. Off the back of a troubling 18 months and counting with the pandemic, many Australians have found themselves in tricky financial situations. Especially with stimulus measures such as JobKeeper drawing to a close, there is still a long way to go to get employment levels and consumer confidence back to pre-pandemic levels.
Managing one’s finances means different things for different people – it can be influenced by employment, aspirations, location, health, and an array of other factors. However, there are some sound financial principles that can be applied across a broad range of personal situations, particularly those in which young people find themselves.
Planning for the Future
Careful planning as a guide for good financial decisions is a bit of a no-brainer, and the importance of having a structure in place for your personal finances when your young cannot be understated. You’ve likely had friends and family in your ear at some point stressing the need to budget your spending, and sticking to it. Easier said than done, but it forms such a critical part of good financial health. Budgeting apps and spreadsheets make the creation and management of a personal budget simple, and if you’re honest about what you earn, what you spend, and how much you want to save, the only thing left to do is put it into action and maintain it.
It’s at this stage you can reframe your thinking about taking control of your money – from being a chore, a pain, maybe even an inconvenience – to an opportunity to really examine what you want to achieve in the future, how money factors into that, and subsequently developing a realistic plan for how to make it happen. The fact that very few people achieve their goals without an extraordinary amount of hard work is indicative of the value in not only having a plan, but having a good plan and sticking to it.
Get on Top of Debt
It’s hard to go anywhere these days without hearing about the record-low interest rates on offer from lenders, the booming property market, and the great opportunities around for those looking to enter the property market. However, tightened lending restrictions have prevented some from getting into a home of their own, with a common roadblock being too much existing debt. This means that young people who accumulate bad debt in their twenties (through credit cards etc.) might find it more challenging to get into a home of their own if and when they decide that it’s time to do so. Many are finding that debts built up will need to be paid off before they can secure mortgages and take other significant financial steps down the track.
If you have debt hanging over your head, there are practical steps you can take to get on top of it. Paying down debt includes being clear about your spending, modifying any spending behaviours that limit your ability to service debt or pay for essentials, and formulating a debt-repayment plan (building this into your personal budget). There are support groups and financial counselling services which can be useful for people who might be struggling to make ends meet and need extra help, and it’s also wise to seek professional advice from a financial adviser before making any major financial decisions.
Don’t Forget About Superannuation
Once you turn 18, employers are required to pay superannuation contributions on your behalf. These payments are important in order to keep a steady flow of funds into your retirement nest egg, but it is worth considering voluntary super contributions. This can being about multiple benefits – first of all, you’re putting it out of reach for any impulsive spending, you’re boosting your super balance to potentially increase in value (assuming it’s invested appropriately), and you may be able to take advantage of incentives like the First Home Super Saver (FHSS) Scheme.
The FHSS Scheme allows you to save up to $30,000 for your first home inside your super fund, which theoretically allows for faster saving given the concessional tax treatment of pre-tax superannuation contributions (i.e. reducing your taxable income). You can then withdraw the amount plus associated earnings to put towards a first home – pretty handy when it comes to finding money for a deposit! Before taking that step, consider how much of your savings you might like to leave accessible before you reach retirement age – super should therefore only form one part of your investment strategy, not the whole lot.
The bottom line is, you’re never too young to have make smart financial decisions an effective plan for your hard-earned money – managing your finances well earlier in life can not only spare some financial headaches in the future, you may even find yourself with a lifestyle that far exceeds your expectations. Get in touch with the Wealth team at McKinley Plowman today on 08 9301 2200 (Joondalup), 08 9361 3300 (Victoria Park), or visit www.mckinleyplowman.com.au for more information on how we can help you achieve your financial goals.
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