When should you start considering financial planning? Many young people cannot see the point of insurance and investments, because they feel they don’t need them, or they believe there is plenty of time left. It is only when we see what benefit, we could have had if we had invested those small amounts regularly, do we see the great loss from not planning ahead. Financial planning, insurance, good lending and investments should start as young as possible. Here is a general guide for your young people, from income protection insurance, through to simple saving.
Financial planning sounds such a big and complicated term. In reality, it is about using your money sensibly. Financial planning can just mean making up a monthly budget and sticking to it. Financial planning implies a sensible use of your money. Money will work to your benefit if you can accumulate it. You will be able to lend more if you have gained that trust.
A standard rule for general long-term saving is simple. It should be 10% of your income. This is not saving for any particular purpose, it is purely long-term savings. This money should never be used for any purchase that is not another long-term investment, such as buying a house. If you are saving for other items, such as a new TV, you should save separately for that. Consistent saving, and consistent increases in your monthly bank balance, will put you in favour with your bank. And there are a lot of consequences to that. Read: The Miracle of Compounding Returns
We all need to get credit in our lives. Starting of small, and getting a good reputation, is the name of the game. There are too many ways to get credit, and you should be very careful about this. There are many better ways to get that new home entertainment system than signing up for a two year contract. The best initial credit to get is a credit card. And only use this when it is beneficial to you, and always make the payments back so you do not get charged interest! (Read: How are the Interest- free days calculated for my credit card?)
Must Read: 8 Mistakes to Avoid When Using a Credit Card
Before too long, you will be able to get a personal loan. We all need a car, and getting a car loan, or personal loan to fund that purchase, will put you in good stead for the biggest investment in your life, your mortgage and your home. (Read: Should I prepay my loan or Invest that money?) The early you can get a mortgage, and afford it, the better. It is easy to get side-tracked with so many offers of credit. Remember, what ever you get now, you have to pay more for later. You should choose wisely.
When we are young, it is too easy to think that we do not have to think about the future, and we have plenty of time. Even if you are single, your funeral could be rather expensive. Manage future protection with the size of your life insurance and other policies. In today’s volatile business market, none of us can afford not to have income protection and health insurance. Because you are young, and your policies will be cheaper, the best choice is to manage your cost of coverage. Invest step by step. You can increase these policies over time. It is best to get your foot in the door early. Insurance and even a small amount of superannuation, even at a young age, is very important.
The key to making the most out of the money you earn is a little patience. Spread your money evenly so you are covering all your bases, and by the time you are in your 30s, you will find that you are well on your way to a successful future. That is when it will really count.