How Can I Build Healthy Financial Habits In My 20s And Beyond? #Hotline

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The Vestpod hotline is now open and ready to help answer your financial questions!

In our first #Hotline episode, the Vestpod team will lead the way to open up the conversation about money, with our brilliant intern Audrey asking our first question of how to lay the foundations for healthy financial habits. You’ll also hear all about Emily’s proud money moment, as well as Veronica’s favourite episode of The Wallet.

💥Today on The Wallet:

1️⃣ I share my top tips for building healthy money habits in your 20s and beyond, highlighting the areas you should focus on as you start your financial journey.

2️⃣ We’ll discuss how thinking about your goals for the future can help create a budget you can stick to, and how making smart money decisions has long-term benefits that can help you achieve future financial success. 

3️⃣ We’ll also hear from the Vestpod team and find out what they have loved and learnt from The Wallet, as well as a proud money moment that might inspire you to take action today for your future self. 

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According to financial capability, 18-24-year-olds face crucial transitions to adulthood, including their first experiences with debt and borrowing. Although they report high levels of financial worry, they are comparatively unlikely to seek support. 21% of over-indebted people in the UK are aged 18-24. More than 1.8 million people aged under 25 years are experiencing financial difficulty as they embark into adulthood.

Understand where you are today

  • Set a regular ‘date with your money’, where you sit down and look at your numbers: what you have and what you owe. Calculate your net worth, and adjust your budget. Track your debts and write everything down (or use one of the many apps to help you). You needn’t be a maths guru to keep track of your money!

  • Next, build an emergency fund. This can be anywhere between 3-6 months’ worth of living expenses that will cover you if you suddenly find yourself in a situation where you need cash. Don’t worry if all you have at first is very little — it will build up over time. Starting with something is better than not starting at all.

  • Create a budget. Look at your income/expenses over the past 3 months. Where does your money mostly go? You can split your budget into three categories: 1. essentials (rent, utilities, food) 2. savings (or investments — if you don’t have anything in this category yet, don’t worry, but you might want to get started!) and 3. lifestyle (clothes, travel, eating out). Try to balance these categories in a way that allows you to save money for your future.

Train yourself to save up for big purchases

  • Don’t spend money you don’t have. It’s tempting to use a credit card or overdraft to pay for things we really want, but it only lands us in debt (which is very expensive and stressful!). Stay in control of your debt and don’t ignore it.

  • Understand good debt vs bad debt. Good debt has the potential to increase your wealth - student debt, mortgages, etc. are cheaper than short-term debt, and they’re not bad debts per se. Bad debt is incurred when you borrow money quickly to make a purchase, especially if it’s something you didn’t really need.

  • Get rid of your expensive debts by cutting down your spending and paying it off month by month. Negotiate your utilities, plan meals ahead, buy and sell second hand, cancel subscriptions, and ask for a pay rise! All of this will help you cut down your spending and repay your debts quicker.

  • Don’t be ashamed about your debt. Talk to your friends or join online communities, or seek advice from a charity. They can help you with a repayment plan.

  • Be mindful of your credit score. A good credit score will show that you always repay your credit card bills in full or pay your bills on time. This is important because it can help you get a better mortgage rate or a loan in the future. You can improve your credit score by using a direct debit and paying more than the minimum required on your credit card, registering on the electoral roll, paying your bills on time and keeping your credit utilisation low (25-30%).

Think about future you

  • Establish your spending priorities. Whether it’s buying a house or having children, you should consider how you want to use your money, and what you want your money to accomplish on your behalf. Money that you save for retirement is invested and will compound over time, so always try to think about your future self (no matter how hard it may be!). If you start today, you won’t have to play catch up later!

  • Think of your pensions as your salary for later life, which you can generate from your savings. Pensions may sound like a boring topic, especially when you’re young, but as soon as you get your first job and have a workplace pension, try to understand how it all works. Future you will thank you.

ignore outside noise

  • It’s normal to crave external validation, but be mindful of comparing yourself too much to others and trying too hard to fit in. This is especially hard in the world of social media, but it’s something that’s worth trying to work on, both for the sake of your mental health and your wallet.

  • Take a step back and think about what you value in life, then look at how you spend your money. Align your spending habits with your beliefs and what you want in life.

  • Never feel judged or judge anyone else based on how much money they have: money is simply a tool.

some things really are too good to be true

  • Stay safe and be mindful of scams and fraudsters. Young people are just as prone to frauds as older people, and criminals looking to steal your money have amped up their activities since the pandemic.

  • The same applies to ‘trendy’ financial advice you might see on social media. Few influencers are qualified to give financial advice or have any sort of background on the subject, so please think twice before spending or investing your money.

To summarise: money is a loaded topic but it’s so important to talk about it. Making smart money decisions in your 20s has long-term benefits that can help you achieve future financial success. Focus on having a good credit score, being debt-free, saving money for retirement and your goals as well as milestones!

Resources:

ArticlesVeronica MorozovaPodcast, The Wallet, Investing, money mindset, Money PsychologyComment