Whether by choice or chance, neither dream eventuated into reality and somehow the lottery numbers that would deliver instant wealth never fell my way either.
What did eventuate however was starting my first full-time job and discovering the freedom of a steady income stream, the revelation that you could be paid while on holidays and a small but practical epiphany that water doesn’t flow from your taps without paying the monthly bill.
Your experience might have been similar to mine; our twenties are usually a period of substantial growth and for better or for worse, a time when we come face-to-face with new financial responsibilities.
Looking back life seems a lot simpler back then. Budgeting was primarily handled by remembering to go to the bank on a Friday to withdraw enough cash to get you through the weekend’s activities and phones were things screwed to the wall at home or housed in dedicated booths on major street corners. They certainly were not a source of instant cash.
But if I were to give some general financial advice to my twenty-something self, it’d probably be themed around the following:
Talk about money… often!
Money can often be an awkward topic to broach but it can also be a valuable conversation to have with friends and family. Starting a dialogue about finances with and getting advice from people you trust can encourage you to think more proactively about how you manage, save and invest your own money.
For example, if you are thinking of investing for the first time and unsure as to where to begin, it is likely that your peers are going through or have recently been through a similar experience. If that’s the case, they might often be a good source of information as the knowledge you share is more likely to be the right level of detail and complexity.
Alternatively, talking about finances with older family members can yield helpful tips and insights as they’d have had the benefit of hindsight. It is amazing the amount of new information you can pick up just by hearing from those around you.
Although one caveat here is that everyone has their own bias so good to challenge perceived accepted wisdom. In my case the family background was conservative and based around property and bank term deposits so attending an early ASX seminar on sharemarket investing was both an eye-opener and the start of a lifelong journey.
From savvy budgeting tips to providing the motivation you need to finally sort out your superannuation, simply having a chat about money can not only compound your interest in the topic, but might also set you up better for the lifestyle you want in the future.
If you are still unsure as to where best to start, sometimes having an initial discussion with a licensed financial adviser can help you better define and work towards your financial goals.
You may have heard the saying that the best time to invest was yesterday, or that time in the market beats market timing. While it is always important to do your research before making an investment decision, it is also easy to get caught up in the mountains of information out there and be paralysed by procrastination and choice. You can have the right intentions to be financially responsible but all intentions are merely that without the action.
The right time to sort out your finances is now and the right time to invest is when you feel that you are in a position to do so, not necessarily if the market is up or down. Because there is no hard deadline for when you need to consolidate your super and stop paying fees on three different accounts, or no crystal ball to predict the date you’ll experience a financial emergency, it’s easy to put it all off and continue to be financially complacent.
And of course being twenty something means you have something incredibly valuable – time to ride out market cycles because nothing is guaranteed.
It’s all about balance
Being financially responsible doesn’t mean never treating yourself. It’s about figuring out a balance that allows you to live your best life both now and in the future.
A widely-used rule is “60-20-20” where 60 per cent of your income goes towards daily living costs such as food, utilities, rent or mortgage, 20 per cent is allocated towards your savings and the other 20 per cent can be spent on discretionary items like entertainment, travel or dining out.
This rule is even easier to follow if you set up different bank accounts for each bucket and automate the transfers for when you receive your pay so it splits between accounts accordingly. Of course, this is only a general guide and you should find the allocation that works best for your financial situation.
The above might sound like just common sense but getting on top of your finances really is as simple as having a little interest and discipline. And who knows, being financially responsible earlier on might mean you have the resources later in life to finally become the race car driver of your dreams.
Written by Robin Bowerman
Head of Corporate Affairs at Vanguard
27 January 2020
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