Colette Sexton, news correspondent at The Sunday Business Post, on how twenty-somethings can protect their future finances.
While your twenties can and should be a time for fun, it is important to make some sound financial decisions during these formative years to protect yourself for the rest of your life.
Avoid loans, credit cards and debt in general
We are fortunate to live in a country that does not charge extortionate fees for third level education, so most of us graduate college with little to no debt. Do not underestimate how great this is. During the recession, financial institutions were careful with who they shelled out money to, but they are quickly forgetting the lessons of the past and as a result, they are back to the old tricks of offering loans and credit cards left, right and centre.
Loans are now easily accessible with a few clicks on an app, but just because you can, does not mean you should. A loan for a holiday or a fancy car might seem like a good idea now but think about how that might affect your finances in the future. You do not want to enter your thirties with debt from frivolous purchases.
Set up a pension
If you work, then you should be putting away a proportion of your salary towards your retirement. If you are not doing this, then you need to start immediately. Right now, email whoever is in charge of your company’s pension plan and ask to be included. If you are self-employed or freelance then research the options available to you.
From March, the pension entitlement in Ireland will be €248.30 weekly. Believe it or not, that is actually very generous by international standards. It is very likely that by the time the current crop of twenty-somethings retire, that the pension will be lower (or that it will not rise with inflation). Take responsibility for your own future by setting up a private pension. You don’t want to be knocking around the retirement home by yourself while all your friends are off flying in their jet packs.
Create an emergency fund
You might unexpectedly lose your job. Your car might break down. Emergencies could unexpectedly land you in debt if you have not squirrelled away some savings. Plus it can be very stressful living from month to month knowing you have no financial safety net. While loans are unfortunately accessible with a few clicks online now, the good news is that so are savings accounts.
Set up a savings account and ensure that money is automatically transferred to it every time you get paid. Having a little nest egg built up will take a while, but now is the best time to start.
Stop relying on relatives
Relying on the bank of mum and dad to bail you out for basic expenses as an adult is just not good enough. It is not fair on parents or family members to have to cough up because you repeatedly live beyond your means. Plus, long-term, if you are looking for a loan or a mortgage, then financial institutions will easily be able to see that you cannot afford your lifestyle.
Track your finances, make a list of your incomings and outgoings and if you are spending more than you earn, then you need to rein it in. Just because you are accustomed to going out every weekend and shopping to your heart’s content does not mean you should do so. Cut the apron strings, it is time to stand on your own two feet.