What are you supposed to do in your 20’s?
I was recently asked to write some blog posts to address the main things people of different age categories should be looking at financially, and I think it is a great idea.
Generally speaking at each stage in your life you have different priorities, concerns, goals and financial considerations. Over the next month, I’ll address the most common issues facing each age group and point out the most important areas for you to look at.
What better way than to start at the beginning, with the 20-somethings. More specifically the 20 to 30 age category. Most of these young folk are typically finishing up study, starting their careers, buying their first home, travelling, getting married and thinking about having kids. So many things going on!
This age category can be worlds apart for some people, but there is something to be learned for everyone here so, here is a quick road map for managing your finances in your twenties.
1. Leave your HELP debt – Don’t try and pay this off early, especially if you have other debts. The interest is negligible, and you only pay it off if you earn over a certain amount. Let your employer make the mandatory payments based on your wage and don’t worry too much more about it. These employer payments are also taken from your pre-tax salary which is a win.
Plus from January 2014, the Australian government will remove the upfront HELP payment discount of 10%. You are also only entitled to a 5% discount on early payments only (not the total balance) if you make additional payments. Overall there is less incentive to pay it off early, so why bother if you ask me. Paying off your home, car or personal loan is more advantageous for you, so focus on those debts.
2. Get your life insurance – Why? Life insurance needs will change over time, and it is likely you will need to review this in the future, but there are some very good reasons to get some in place while you are young. Firstly, it’s a hell of a lot cheaper. If you get it in your 40s/50s, the costs definitely go up.
Secondly, as you are younger, you are generally healthier. Life insurance is based on your medical history. As we get older, things start to go wrong with your body which can affect your insurance. If you have a clean bill of health, getting life insurance is cheap, quick and easy, and definitely worth getting in place if you have bought your first home and are thinking of having kids. That’s right, you have responsibilities now!
If you see a financial adviser they can help you determine the insurance you need and give you access to high quality and often cheaper products than you can get for yourself. Some of these insurance policies are only available through financial advisers, so you may as well have them working for you.
3. Buying your house – I have previously written about the important things to think about when buying houses here. Depending on how far off you are, you can also consider a first home saver account.
The government contribution involved with this is up to 17% on the first $6,000 that you deposit each year. It is also a reduced tax environment which is another win however you do need to consider the cons. When opening a first home saver account, your money is tied up for a minimum of 4 years, and if you don’t use the money for a house it must go to your super account. So if you change your mind, I am sorry, you can’t use that money to go travelling.
4. Your super – Ok, considering your other priorities, don’t stress too much about super, just make sure all your super is in the one place. Get an account with the lowest fees and online access if you can. Fees can be shown in a variety of different ways, but if your total fees for the account equate to approximately 1% to 2% of your super balance, then you are doing ok.
Also, keep an eye out for automatic life insurance. A lot of super funds offer this, and if you can get some of your life insurance needs covered through super, you won’t have to go through applications and potential medicals. It is also easier on the old cash flow side of things.
5. Save – Yeah I know, how boring right. But seriously, you should probably aim to have at least 3 months worth of salary tucked away in a high interest savings account that you can not access with an ATM card. That is honestly the bare minimum that I think you need.
That 3 month buffer is comforting and important as you never know what can happen. We have all lived through the GFC, so we know jobs aren’t always around, and I am sure we have all seen our fair share of medical catastrophes.
6. Review your bank account – Make sure you aren’t paying fees when you don’t have to. Just because you opened an account when you were 6 with a bank, doesn’t mean you have to stay there. Money is money, and if your bank is taking it from you, then take your business elsewhere.
There you go…. Easy!
So, print it off, and tick it as you go. If you can sort out the top 6 then you are doing pretty good. If there are any 20-somethings out there who have any unique questions then send them on over and I’ll give you some tips.
Next week: The dirty 30’s….
– This post is from our resident senior financial planner, Cara Brett. Check out her details in our about us page.