It’s never too early to wise up about your finances: the sooner you start putting money aside, the better.
And we’re not just talking about your future: getting into healthy financial habits can be beneficial in the present, too - even if it means declining a restaurant invitation with friends every now and again.
From studies which have shown that money worries are not only the top cause of stress for Americans, but also something which impacts their health and relationships (1) to research from the Australian government which found that prolonged financial stress was strongly linked to subsequent obesity (2), we know that it’s better for our mental and physical health to face our finances, no matter what our current situation is.
Easier said than done: research from Aviva found that we’re so desperate to avoid dealing with things of a financial nature that we’d rather be hoovering or changing our bed sheets than balancing budgets.(3)
Time for a change. There are plenty of smart choices you can start making right away to help improve your financial future - and make you richer in the long run. Here are some tips to get you going...
1. Start saving
You’ve probably heard of the 50/30/20 rule for budgeting, which is handy in breaking down where you should be spending – and where you can start saving.
The rule states you should be spending 50% of your income on essentials (living expenses, food, utilities, transport, etc.)
The next 30% of your income should go towards personal spending: that posh coffee you can’t resist once a week, the yoga classes you head to every Saturday and Sunday morning and that city break to Paris you’ve been fantasising about.
Which leaves 20% of your income which you can save (first, sort out your debt repayments, if you have any). After you’ve taken care of your essential monthly outgoings – and before splurging on any of your personal wants – pay as much as you can into this category each month and you’ll soon find you have a nice little nest egg building. And if you can manage to squeeze 25% or 30% of your monthly income into your savings pot, then well done you.
Bring a packed lunch to work a few days a week and skip the next few nights out and you could have around £100 to save each month. Or ditch the bigger splurges - like those new trainers you’ve been eyeing - and think about the payoffs in the long run.
2. Get a pension
A pension sounds very adult, very responsible, and very much like the type of thing that we often feel we don’t need to worry about for a very, very long time. That’s a mistake: getting on a pension scheme early on will help you to prepare for the future.
First of all, make sure you are enrolled in a workplace pension, where your employer is required to make minimum contributions to your pension.
So, for example, when you put in £40, your employer will put in £50, and as an added bonus, the government will give you tax relief on money you pay in, adding an extra £10 to that. Voilà: you suddenly have £100 in the pot.
According to research from Aviva (4), only 14% of 18-24-year-olds currently have a pension, and fewer than 50% of 25-34-year-olds do.
The thing is, the system incentivises you to start making contributions from the get-go: the government will immediately start giving you tax relief, and your employer may contribute (and with auto-enrolment, they have to).
If you start later, you’re more likely to have to pay in larger sums of your earnings to net the same amount – and the sooner you begin putting in, the longer your money will have to grow.
A good starting tip for paying into your pension is to pay in whatever you can, and whenever you get a pay rise, redirect some of that money into your pension – this will improve your pension and means you won’t get into the habit of spending your future money.
Remember, the value of investments can go down as well as up and you may get back less than you invest.
3. Forget emotions
“When dealing with our finances, we have to understand that money is intricately linked with our emotions,” says certified financial planner and founder of Money Clarity, Sarah Hennigan.
Even though we know that we should be saving for retirement and making sure that we don’t spend more than we earn, we often find ourselves overspending: on holidays, clothes, meals out, or helping family and friends when they’re in a bind.
This is letting our emotional side convince our rational side to do what it wants, and while it might gain you a fabulous new dress or sofa, it isn’t going to help your future finances.
“Having knowledge of this can stop us from making poor knee-jerk decisions,” Hennigan explains.
“When making financial decisions, focus on the goal and leave emotion out of it. Our emotions can and will sabotage our financial success if not kept in check. We have to be really honest with ourselves about where we spend our money. Is it truly in alignment with our vision for a richer life?”
How to fix it? Don’t let your emotions rule your financial life – and turn saving money into something you can enjoy.
Download a budgeting app to keep you motivated on the go, challenge yourself to save a certain amount each month and reward yourself with little treats when you spend less than you planned. Most crucially, don’t let yourself feel deprived.
4. Make some cash on the side
Can your baking skills rival those of a contestant on The Great British Bake Off? Are you talented with crafts? Do you speak another language? Extra skills = extra earning power.
In addition to your income from your main salary (and if your employment contract allows it), see if you can monetise one of your other skills or hobbies to make extra money. This way, you won’t have to cut into your future savings when spending in the present.
You can use your extra income stream to help you save for something big, like a new car or your next family holiday, or you can put the money towards your future retirement.
Since you’ll be doing something you enjoy, the extra money in your pocket will taste that much sweeter.
5. Look for deals
Saving for the future doesn’t mean you need to sacrifice all of life’s pleasures in the present. But you can be smart about them, whether you save on your next holiday by booking a bed and breakfast instead of a hotel or change utilities providers to keep energy and gas prices down. Get into house-swapping through a recognised home exchange website to get cheaper holidays, use food-swapping apps to share food with neighbours, have a clothes swap shop with friends and share childcare with other parents in your area.
Find out more about planning for your financial future and starting a pension now at Aviva. Pick up hints and tips, use the Shape My Future tool to see how much you might need a week when you retire to live the life you want.
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(1) American Psychological Association
(2) The Obesity Society
(3) 5 Steps To Take Now To Get The Retirement You Want, Aviva
(4) Aviva Family Finances Report