How to Get Your Financial Act Together Before You're 25
I recently dropped a truth bomb on Instagram, which had most people feeling all ‘yaaaaaas girl’ but left some others feeling like I was dishing out a ‘Dad-splain’ on everything you’re doing wrong as a young person. Note: by Dadsplain I mean that lecture-like explanation a father gives his kids on how things weren’t the same in his day and why they should realise how lucky they are.
Let’s just say that in case it wasn’t obvious, the latter wasn’t my intention.
Hey, I certainly didn’t get my financial act together until I was 26 – and leaving it so late meant I had about a decade of earning under my belt with piss all to show for it, except some blurry memories of paying around $45AUD to get into a club in London’s Mayfair.
So how can you avoid doing what I – and most people – did and get financially woke as early as possible?
First, you have to realise that while it may feel like you have no money or don’t earn enough, there’s a good chance that you’re at your most liquid right now.
In case you didn’t take business studies at school, liquidity means your access to cash. Not assets or wealth, just cash.
Yes, in your late teens and early twenties, you’re probably studying, working part time or at the very beginning of your career. If you are at the start of your career, you’re most likely in a job with an ambiguous title involving the word ‘coordinator’ which essentially means you pick up other people’s flack for half the pay.
So while your actual salary or hourly rate may be less than you’ll be earning in 10-15 years, your responsibilities are proportionally lower too. What’s more, as a young person, you’re also more capable of earning extra cash, whether in a second job, doing ad hoc work like cleaning or babysitting, or by picking up extra hours at your current job. While not defined economically as liquidity, I personally feel it’s an opportunity you miss when you get older. Generally, once you’re working 9-5, your salary is your salary and that’s that.
A vast amount of people under 25 in Australia are living with their parents. It’s a culture that the UK and the US don’t subscribe to, but it gives Australian youth a unique opportunity.
I think it goes without saying that if you’re living with your parents and working full time, you should be making substantial headway on your savings. To be frank, I’d say you should be saving half of your earnings at the very least – unless you’re paying your parents a whopping amount in board. But let’s assume you’re not.
But what I really want to focus on those who aren’t working full time – on those who might be working 15-30 hours a week and probably studying as well.
Working part time is associated with having less money – so you assume that financial control will come when you start working full time, right?
But why not take control now?
Work Out Your Earnings
I hate to break it to you, but your disposable income – being the gap between your mandatory expenses and your total income – is probably the biggest it’ll ever be.
Let’s say you’re 21, and work in retail doing a modest 4 hour shift three days a week, and a 5 hour shift on a Sunday, on a $22 an hour pay rate. And from what I overhear on the train, most young people are working more than this, at least during the holidays.
3 days (4 hours x $22) = $264
5 hours x $44 (double time) = $220
WEEKLY TOTAL: $484.
Well butter my butt and call me a biscuit. I’m almost 28 and I can’t remember the last time I had $484 a week to spend. I leave myself $170 to spend, and that includes food shopping, daily public transport, petrol, and of course the running costs of being a millennial badass.
Okay, so the first step to putting this $484 into the right places is discipline. I must start by saying that yes, I know a lot of young people do save money for travelling – and that’s great. But I really encourage you to save for the future, as well.
Say of this $484, you put away 20% each week. Look I’d love it to be more but let’s say you go with 20% because you’re saving for a Europe trip too and are already stashing some more for that.
20% would be $96.80.
If you put this away in an account you can’t touch, you’ll have over $21,000 by the time you’re 25 – and that’s just on a 3% interest rate. Lemme tell ya, most 25 year olds don’t have that.
And, you’ve still got $388 a week to play with. That’s enough to pay any board you owe your parents, and go out to brunch, and drink $14 frosé, and shop online, and save for short term goals like travel.
Side note: if you left that $21k there until you were 50, you’re looking at $230,000. Just sayin’.
For inspiration on this, read my interview with 23 year old Jacqueline, who has over $50k in savings.
Programming Your Brain
Whatever is left after you’ve put away your 20% (or more), go bigger and try to live on even less than that number. Drilling down on your ability to spend less than you earn is an incredible skill that will transform your life. The earlier you start, the better.
Getting used to having a set amount to spend each week can be tough, but while you’re living at home and aren’t going to get struck by a bill for a new hot water unit or a burst water pipe, you can afford to make mistakes and take more risks. When you’re young, you have less responsibilities – less things are hanging out in the background waiting to pop up and suck your money away. Besides car registration and insurance, you’ve not got much gunning against you. Get playful with your budget and challenge yourself to form new habits.
If you want to play with more numbers, you might enjoy my FREE Budget Babe in 7 Days course. It works through your income, your expenses and how to establish how much you can live on. As a young person with far less financial responsibility, you’ll probably be amazed at how much you have available to save.