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We all know the importance of washing our hands before dinner and to look both ways before crossing the road. These are things we learn as we’re growing up. What we don’t learn a lot about is money management, and some of us pay the price in our later lives. Here we look at the top four things that it would have been beneficial to know sooner, and what you can do to help improve the state of your finances now.
Don’t get out of the saving habit
Did you have a piggy bank when you were a child? Do you remember the joy of watching it slowly fill up and meticulously counting the pennies until you had enough to buy the toy you’d been coveting?
Fast forward to the adult years and most of us have got out of the saving habit. The thrill of our wages arriving each month can sometimes mean we rush headlong into a spending frenzy and before we know it, everything is gone before the month’s halfway through.
If you’ve fallen out of the saving habit, it’s time to get back into it. Firstly, work out how much you’re realistically going to be able to save each month. And if you can’t find any wiggle room for savings, take an in-depth look at what you’re spending your money on. Could you, for example, cut down on your satellite TV package, or commit to making lunch four days a week, as opposed to buying from the local deli? Any cutbacks you can make can be funnelled into your savings plan. And it’s good practice to set up a standing order to transfer the money into your savings account as soon as you get paid. That way, it’s not there to spend on other stuff, like that delicious sandwich from the deli.
Your financial past can haunt your financial present
When you turn 18, for the first time in your life, you’re given access to credit. And if you’re going into it without having a good knowledge of how credit works, you’re in danger of getting yourself quickly into debt. And debt can be hard to shake off.
Just because a bank gives you access to an overdraft, it doesn’t mean that you should see it as an additional line of income. It’s there to help you in case you need to cover some necessary expenses before the next payday. And you should always aim to pay that amount back each month. Likewise, with credit cards, they’re not there to help you buy that designer bag you could never afford.
If your financial past has got you into debt, there are things you can do to get back into the black. Think about consolidating your debts into one easy-to-manage loan, so you only have one payment to make each month. Or, if your credit rating has been affected by your past spending behaviour and left you unable to access credit, you can apply for a credit card for bad credit. Aim to repay the amount you borrow in full every month and you can start to rebuild your credit score.
How borrowing money works
Borrowing money can seem daunting when you’re younger. APR, interest rate, fixed, variable; the jargon is confusing to say the least.
But most of us will need to borrow money at some point in our lives – whether it’s to buy a new car, to pay for home renovations or for a wedding. It doesn’t have to be daunting or confusing, but it is a good idea to fully understand what you’re getting into before making a commitment.
A comparison website is a good place to start. Compare the Annual Percentage Rate (APR) of the loans on offer. This shows you the cost of the loan on an annual basis. Then look at the length of the term – how long it will take you to pay the money back – and if you’re comfortable with this. Ultimately, you need to work out if you can afford to make the repayments before taking out the loan.
One day, you will need a pension
We all know that one day we’re going to retire. Some of us even start fantasising about it the moment we start work. But one thing that not all of us do is pay into a pension.
Paying into a pension has been made a lot easier since the introduction of Automatic Enrolment in 2012, which stated that all employers had to enrol their employees into a workplace pension scheme by 2018.
When you start work, you may be on a low wage, so it can be tempting to opt out of a pension, but it’s important to think about the long game. The longer you wait to pay into your pension, the more you’re going to have to put in when you start, or the less you will have when you need it. With a workplace pension scheme, your employer matches the amount you pay in and as your contribution is taken out of your gross pay, it’s never there in your account to miss. So, if you did opt out of your company pension, now is the time to opt back in!