Not exactly as expected... this money stuff is hard work
After all the distraction of hopefully successful Degrees, Apprenticeships, finding work, finding accommodation by joining the ranks of Generation Rent, we hope things are settling down for you and the focus on the direction of your life is becoming clear. Even the most determined find their early 20s a time of significant change, with outside influences placing you where you may not have expected, and this can slow progress. Money planning might be hard work, even boring, but it needn’t be. And apologies straight away because those in financial services love jargon...so much of it! So we’ve added a ‘Jargon buster’ section in our SaidSo service to help box this off.
With employment secured or a new business started and running, life pressures may just be off for a few years before you start to think about coupling up, children, mortgages and all the usual life paraphernalia that most embrace. Yuk! you might think now, but give it a few years!
Hopefully there’s the chance to have a bit of fun at this time of life before the big responsibilities really kick in. You might even have a bit of cash to spare for socialising and holidays. It’s possibly the calm before the storm, though, so enjoy it while you can…and think about putting a bit away each month to fund your future commitments.
Keep saving – your older self will thank you
You may have built up some savings already, but if you haven’t, it’s really worth getting it going. The SaidSo team knows that if you haven’t got much spare cash, putting some money aside each month can put a bit of pressure on your finances along with trying to pay the rent and other costs. The maximum allowance is £20,000 in the current tax year (2020/2021) and it is also worth looking at the Lifetime ISA, or considering saving into an existing Help to Buy ISA, particularly if you’re starting to think about saving for a first home. You can get more information here.
If you can, though, saving now will help you build up that all-important ‘rainy day’ fund for emergencies and some additional funds for the future – maybe for a house deposit or a car upgrade.
If you’ve built up some cash savings that you know you won’t need to access in the short to medium term (5-ish years), you should think about where these should be invested – are they working hard enough for you where they are? If you’re thinking about stock market investments, have you considered your attitude to investment risk? It’s an interesting process and very important to ensure that your money is invested appropriately.
Our SaidSo.co.uk online financial planning service details investment risk within its programme. Younger generations are far more informed, which is great, and ethical issues might be a concern as to who you put your money with and how it’s used to give you a return. Have a think about this important topic when planning your personal finance.
Check your credit rating
Credit seems so easily available when you’re young, what with store cards, credit cards, loans and the like. Keeping these paid and up to date is vital. If not, you could find that your credit rating is affected, and this will have the knock-on effect of making future borrowing difficult. It could even prevent you from getting mortgage finance when you want it. Check your credit rating through one of the credit rating agencies – it shouldn’t cost much and it will give you a good idea of where you stand in the eyes of future lenders. If you’re having trouble paying off your debts, have you been to the bank of Mum and Dad for help, if this is an option? Plus there’s advice on debt management available from Citizen’s Advice – check out their website.
Start to understand mortgage types and terms
It’s probably not long before you will want to buy your first home – it’s a natural progression for many people once they’ve got secure employment and maybe a partner who’s looking to settle down. Buying a house will invariably mean getting mortgage finance and understanding the terms and options for these loans could be very useful in advance of signing on the dotted line.
A great website to help with this, including the all-important affordability, is the Money Advice Service.
They also give a great guide to buying, moving and budgeting costs here.
What benefits does your employer offer?
You’re in full time employment and your employer has probably signed you in to their auto-enrolment pension plan. Stay in the plan if your budget can stretch to it – as you probably know by now, both your employer and the Government are contributing into your plan as well and this will stop if you leave the scheme. It’s ‘free money’ in effect and great to start your pension planning early.
It’s also good to check whether your employer offers any protection, such as death in service or ill health cover. This is particularly important if you already have dependants and mortgage providers will ask you about life cover too when you get to that stage.
If your employer doesn’t offer these kinds of benefits, the cost of life cover for non-smokers is cheap at your age, so it’s worth a review to see if you need to put something in place.