The financial advice you wish you’d received at 18
Good financial advice is priceless, and the sooner you get it and apply it the better off in life you’ll be.
Today’s 18-year-olds who are preparing to go to university do so knowing that they are going to rack up a sizeable amount of debt by the time they graduate.
Has anyone sat down with them and fully explained the impact debt has on their life?
Advice about the benefits of getting a good education are echoed everywhere but strangely enough young people get little formal advice about financial planning through regular education channels. Aside from what they hear from their parents, who aren’t always the best at giving guidance on money management, they learn by experience.
The internet offers lots of financial advice in return for a few keystrokes and a couple of clicks but there’s so much out there and much of it is confusing and contradictory.
The financial challenges faced today make being engaged with the world of money more important than ever. Job security is something we reference in history books, banks are a very different entity to what they once were and the world is evolving at a far greater pace than it has ever done in the past and these changes are impacting more people, more quickly than ever before.
1. Be a saver not a debtor Few people truly understand debt and its implications. The first real exposure to debt in life is usually the aforementioned student loan. However, they aren’t a true reflection of debt. It’s actually more like a graduate tax. The amount is paid off over 30 years and how much you repay depends on how much you earn. If you earn less than £21,000 a year, you don’t pay back a penny. According to analysis by the Institute for Fiscal Studies, more than two-thirds of graduates will never repay their entire student loan which hopefully makes you think a bit more carefully about what you choose to study. This is explained more fully in point 3. Saving, especially savings which earn interest, seems to be like an endangered species to people under a certain age. If you have kids open a savings account today, instead of presents (or as well as) ask gift givers to make a deposit into their account and let that snowball gain momentum. By the time they’re 18, you will have already opened up so many more options for them even if going to university isn’t on the agenda. While your savings will be your fall-back position in case something unexpected comes along (good or bad) which requires immediate funding. As for debt it’s not all bad. If the debt you take on leads to an additional income that covers your debt payment it’s a good thing. However, any other debt should be avoided if possible.
2. The sooner in life you learn the value of money the better Getting a job at an early age might be one of the best things a parent can do for a child because there’s nothing like having to work to make you appreciate the real value of money. The less you earn and the harder the work, the better this lesson becomes.
3. Make yourself valuable Gaining knowledge is great, but having skills generates a salary. Whatever you choose to learn, make sure you understand its value in the market place and how much potential employers value it. The best education is the one that combines your natural talents with knowledge and makes you sought after. Being better than others at doing something naturally increases your value. And if you’re also doing what you love you’re as close to finding the meaning of life as anyone usually gets. This applies to more than the education you get in school or university. Some people just aren’t cut out for academia, but that doesn’t mean they not smart or can’t benefit from education. Getting financially educated will also make you more valuable. However, this will be explored later.
4. Stay liquid Running out of cash is the financial equivalent of a heart attack (loan=defibrillator, bank=hospital – and who likes having to go to a hospital?) This is related to the first point but staying liquid is also about paying off your credit card at the end of the month (don’t get more than one) and having the leverage to get a better deal. Without liquidity none of this is possible and means you’re already sliding down a slippery slope into bad debt.
5. Learn to budget This can only follow after getting to grips with point 2. Once that is in place you need to understand where the money comes in and where it goes out again. This skill makes it easier to economise when things get tough (as they do for everyone at some point in life) and you’ll be better placed to gauge the affordability of any major financial purchase or investment you want to consider.
6. Buy property Everyone needs a roof over their head so buying a property is essential. However, if that roof over your head ends up costing you all your liquidity and limits your financial options then it’s the wrong property. If your property can generate the funds to pay the debt then you’re on to a winner. Perhaps you’ll rent some rooms, or convert a property into flats and live in one while renting the others. There are plenty of options that can make owning a property less of a financial burden. The sooner you can find a way to stop paying rent the better.
7. Learn to financially analyse If you are doing points 1-6 this is going to come naturally. But getting into the habit of analysing your financial decisions in three scenarios: best, worst and most likely will ensure your financial footing remains secure. It will lead to better investments and sound investing and gives you the luxury of backing your own judgement. You’ll manage your investment debts far better this way too.
8. Don’t gamble Gambling has become one of the biggest growth industries around the world and they’re getting more and more sophisticated about how they get you to gamble. It’s addictive, destructive and you always end up losing. So, unless you’re comfortable with setting alight a wad of bank notes in your ashtray, stay well away.
9. Invest wisely Your day job provides a reassuring monthly salary, but it also gets heavily taxed. Making investments makes your money work for you and gives you the chance to earn a passive income. The first rule of investing is don’t invest in something you don’t fully understand or where you can’t determine its true value. The second is never invest more than you can afford to lose. Every investment carries with it some sort of risk so it is imperative that should your investment fail you are not significantly worse off than you were before you made the
investment. Thirdly, there are three types of investment low risk, medium risk and high risk. The level of reward needs to reflect the type of risk you are taking.
10. Stay healthy It would be a great shame if you’re not able to fully enjoy the benefits of your financial intelligence. As Mr. Spock would say: “Live long and prosper.”
For advice on trading and how to take advantage of investment opportunities talk to the experts at FXB Trading. Our platform makes it easy to start earning a second income with only a small investment in time and funds needed. The FXB Trading team are on hand to teach its members any aspect of trading that they are interested in, and reveal how they make their living trading the world’s markets.