The importance of a young head start
Following secondary / tertiary education, a proactive approach to future financial security often fails to be at the forefront of our minds. Entering the workforce is a novel concept as is the realisation of income and how we spend these earnings. Therefore, it is important to consider what measures can be taken in your late teens and early 20s to best prepare for the future whilst minimising compromise of these young and exciting times.
Superannuation – The earlier you save, the easier it is in the long-term. Therefore, it is your responsibility to ensure that all employers are paying compulsory super. Find a low-cost fund where future returns can be maximised with a high growth investment option.
Savings Account – Retaining earnings during this period is a concept that can be easily struggled with. Self-restraint can be demonstrated by optimising a separate savings account where portions of earnings can be diverted to and cannot be withdrawn from. This effectively enables exposure to the full potential of returns that can be generated from compound interest.
Travel Smart – Travelling is an inevitable aspect of this life stage which has an undeniable impact on personal growth and development. However, as we all know, travelling comes at a cost. Accordingly, thorough research, planning and appropriate budgeting is essential for a cost-effective trip. One should also be conscious of the travel card they acquire and use throughout their travels. So, do your research and find one that minimises cross currency conversion and ATM withdrawal fees.
Familiarisation with investments – Dedicate a relatively small portion of funds to create and design an investment portfolio based on your own research of the stock market. This design should experiment with defensive and growth assets when determining an appropriate balance. Own the gains and/or losses that are made from your choices. Then use this experience to make better future decisions and familiarise yourself with the world of investments.
Tax – Although tax typically doesn’t become a concern for several years, this becomes imperative once the low-income threshold is reached. Therefore, tracking and accumulating anything that can be legally claimed as a working expense is critical. These expenses can essentially be leveraged to minimise taxable income and generate a greater disposable income.
Seeking Finance – Where financing needs to be raised for routine expenditures or purchases such as your first car, income and savings at this age are often insufficient to meet this. Avoid taking out loans, or the use of a credit card where possible as interest payments can accumulate and became a major concern in the future. In the case of students, HECS is a powerful tool available amongst other government assistance means that can be sought given one’s eligibility.
Remember, these guidelines shouldn’t neglect the vibrant times that this stage of life produces. However, an acknowledgement of these basics and a genuine effort to emulate such behavior, can be a key step forward to building financial independence.