As a young adult in Leicester, you’re probably excited about the future and all the opportunities that lie ahead.
Whether you’re just starting your career, pursuing higher education or exploring your passions, it’s a time of great potential and growth. However, it’s also a time when you face important financial decisions that can have a lasting impact on your life.
That’s why it’s crucial to develop good financial habits early on and equip yourself with the knowledge and skills you need to make informed choices about your money.
In this blog, we’ll share five essential financial tips tailored specifically for young adults in Leicester. Following this advice and taking control of your finances will help you build a strong foundation for your future.
Create a realistic budget and stick to it
Creating a budget is the first step to taking control of your finances. A budget is simply a plan for how you’ll allocate your income and expenses each month. It helps you stay on top of your spending, identify areas where you can save money and make sure you’re putting enough aside for your financial goals.
Start by assessing your income and expenses. Make a list of all the money you have coming in each month, including your salary, any benefits or allowances and any other sources of income. Then, make a list of all your regular expenses, such as rent or mortgage payments, bills, groceries, transport and any subscriptions or memberships you have.
Once you have a clear picture of your income and expenses, look for areas where you can cut back or save money. For example, you might be able to save on groceries by shopping at discount supermarkets or buying in bulk and cooking meals at home instead of eating out. You could also save on transport costs by walking, cycling or taking public transport instead of driving everywhere.
Finally, make sure to set achievable financial goals and prioritise them in your budget. For example, if you want to save up for a deposit on a house, you might need to cut back on discretionary spending like entertainment or dining out in order to put more money towards your savings each month. Setting clear goals and allocating your resources accordingly will motivate you to stick to your budget and progress towards your financial objectives.
Establish an emergency fund
One of the most important things you can do for your financial health is to establish an emergency fund. It’s a savings account you use specifically for unexpected expenses or financial emergencies, such as a car repair, medical bill or job loss. Having an emergency cushion can help you avoid going into debt or having to rely on high-interest credit cards when unexpected costs arise.
Ideally, your emergency fund should contain enough money to cover three to six months’ worth of living expenses. This may seem like a daunting amount to save, but remember that you don’t have to build your emergency fund all at once. Start by setting a small, achievable goal like saving £500 or £1,000, and gradually increase your contributions over time as your income and budget allow.
To make it easier to build your emergency fund, consider keeping it in a separate, easily accessible account from your main current or savings account. This will help you avoid the temptation to dip into your emergency savings for non-emergency expenses. Look for a high-yield savings account that offers a competitive interest rate so your money can grow over time.
Make a habit of regularly contributing to your emergency fund, even if it’s just a small amount each month. You can set up automatic transfers from your current account to your emergency fund to make saving even easier. And if you do need to use your emergency fund for an unexpected expense, replenish it as soon as possible so you’re prepared for the next financial challenge that comes your way.
Start saving and investing early
The power of compound interest is one of the most significant advantages of starting to save and invest early in life. Compound interest is when the interest you earn on your savings or investments is reinvested, so you earn interest on top of interest over time. The earlier you start saving and investing, the more time your money has to grow through compound interest.
One of the best ways to start saving for retirement early is to contribute to a pension, especially if your employer offers matched contributions through a workplace pension scheme. A pension is a long-term savings plan that allows you to contribute a portion of your income towards your retirement, often with tax benefits. When your employer matches it, they’ll contribute an additional amount to your pension based on how much you contribute yourself. This is essentially free money, so it’s important to take advantage if you can.
Another option for saving and investing early is to open a Lifetime ISA. These allow you to save up to £4,000 per year towards your first home or retirement. The Government will add a 25% bonus to your contributions, up to a maximum of £1,000 per year. If you contribute the full £4,000 to your ISA each year, you’ll receive an additional £1,000 from the Government, tax-free.
Finally, consider investing in low-cost index funds or exchange-traded funds (ETFs) for long-term growth. These investment funds track the performance of a particular market index, such as the FTSE 100. Investing in these funds can give you exposure to a diversified portfolio of stocks or bonds at a relatively low cost. Over the long term, investing in them can help you grow your wealth and reach your financial goals.
Manage debt wisely
As a young adult, being mindful of debt and learning how to manage it wisely is essential. While some types of debt, such as student loans or a mortgage, can be considered ‘good debt’ because they’re investments in your future, other types of debt, like credit card balances or payday loans, can be harmful to your financial health.
If you do have high-interest debt, it’s important to prioritise paying it off as quickly as possible. The longer you carry a balance on your credit card, the more interest you’ll accrue, which can make it harder to pay off your debt over time. Consider using the ‘debt avalanche’ method, where you focus on paying off your highest-interest debt first while making minimum payments on your other debts. Once your highest-interest debt is paid off, move on to the next highest-interest debt, and so on.
If you have multiple high-interest debts, you might also consider consolidating your debt with a low-interest personal loan. Taking out such a loan to pay off your credit card balance or other high-interest debts can potentially save you money on interest and simplify your debt repayment into a single monthly payment.
Avoiding unnecessary debt in the first place is another vital aspect of managing debt wisely. This means being cautious about taking on high-interest loans or financing options, such as payday loans or excessive car financing. Before taking on any new debt, make sure you understand the terms and conditions, including the interest rate, fees and repayment schedule.
Finally, take the time to learn about the different types of debt and their implications. For example, did you know that student loan debt is often treated differently than other types of debt in bankruptcy proceedings?
Or that missed payments on your credit card can negatively impact your credit score?
Educating yourself about debt and credit will help you make more informed decisions about borrowing and repayment.
Plan for future goals
As a young adult, it’s important to start thinking about your long-term financial goals and creating a plan to achieve them. Whether you want to buy a home, start a family, travel the world or retire early, having a clear vision for your future can help you make better financial decisions in the present.
Start by setting clear, achievable financial goals for the short-term and long-term. For example, a short-term goal might be to save up for a car within the next year, while a long-term goal might be to buy a home within the next five to ten years. Make sure your goals are specific, measurable and realistic given your current financial situation.
Once you have your goals in mind, create a savings plan to help you reach them. This might involve setting aside a certain amount of money each month towards your goals or finding ways to increase your income through side hustles or freelance work.
For significant milestones like buying a home or starting a family, it’s essential to start planning and saving as early as possible. The earlier you start saving, the more time you have to build up your deposit or emergency fund, and the less likely you are to face financial stress when the time comes to make these big life decisions.
Finally, don’t be afraid to seek professional financial advice when needed. An experienced financial adviser can help you create a personalised financial plan based on your unique goals and circumstances and provide guidance on topics like investing, debt management and retirement planning. While there may be a cost associated with working with a financial adviser, the long-term benefits can be well worth the investment.
The key ingredient to long-term financial success is starting early and taking consistent action – even small steps can make a significant difference in the long run.
That’s where BDWM comes in. We help young adults in and around Leicester take charge of their financial journeys today and set themselves up for a brighter tomorrow. Our starting point is always you – what are your financial dreams and aspirations, both now and in the future?
Once we understand this, our team of professional advisers will use our years of experience and expertise to create a financial strategy that meets your lifestyle goals. To find out more and make a start, contact us today.