The truth about bankruptcy
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The financial decisions you make when you’re young can impact on your life further down the line. Make the right decisions by following our advice.
When you’re a young adult, you might find that there are suddenly quite a lot of demands on your money. Whether it’s being able to afford driving lessons or a car, or saving up for a deposit if you want to rent and move out of home, life can be very expensive at times.
That’s why it’s really important to arm yourself with the financial knowledge and money-saving know-how you’ll need for the future. Follow our money-management and saving tips and you should find yourself off to a great start in the financial world.
The number one piece of advice we can give at Debt Advisory Centre is to budget. Your budget is your financial plan to stay in the black and make sure that you always have more coming in than going out.
To create a budget that works well you need to account for every little expense, including the more infrequent ones, like car insurance and work out how much money you need to afford everything. That’s bills, rent, petrol, food, clothing and mobile phone bills – absolutely everything you spend money on. For expenses you don’t have to cover monthly, like council tax, work out how much this costs you for the year and divide it by 12. That way, you’re always setting aside enough to cover these important bills. Anything you have leftover after all that’s been accounted for is known as your Disposable Income (DI).
As well as having a budget for your month-to-month finances, you can create ones that are specific to a certain thing you want to do, like going on your first holiday with friends or buying your first car. How much you’re willing to spend on a big one-off expense like this will depend on a number of factors but you should have a clear idea of how much you’re willing to spend and how long it will take you to save up.
Budgeting brings us nicely onto the next important piece of advice – saving. If possible, you should be saving a certain amount of your income every month. How much you can save obviously depends on how much you’re bringing in and how much DI you have after you’ve paid everything you need to. Having said that, there are some things you can do to make sure you maximise your saving potential and reach your goal even faster. Here are a few tips to give your savings a boost:
• see if you can cut down on anything non-essential,
• keep a spending diary to keep track of the little things that might be sucking up your funds,
• make sure you’re not paying for something you don’t need, like unlimited data on your phone or an unused gym subscription,
• write down your target and pin it up on the wall for motivation,
• try switching to cheaper brands, and
• if you get tempted to spend what you’ve already saved, try keeping it in a separate account and limiting your access or giving it to a parent who will keep it safe for you.
Don’t worry if you can’t save loads at the moment because you’re working in your first job after college or uni. You probably won’t be able to save as much now as you will later on in your career, when you’re likely to be paid more. Even saving a little can make a huge difference to how you cope with unexpected bills and how financially secure you feel. Saving is definitely a habit you should start as early as possible – you’ll thank yourself later.
Attitudes to borrowing vary a lot and you might hear very different advice from different people. Some people are afraid of borrowing anything for any reason at all whereas some people think it’s completely normal to live on credit day-to-day. It’s possible that how you feel about borrowing is influenced by the attitudes that surrounded you early on in life. But is there a right way to borrow?
The truth is that borrowing is not necessarily bad. It’s very likely that there will times in your life when you need to borrow to afford something that will help you, like getting a mortgage or a car on hire purchase.
On the other hand, when debts get out of control, it can have a hugely detrimental effect on your life. You don’t want to find yourself in a position where every spare penny you earn goes towards repaying your debts and you can’t afford your repayments anymore because of the interest and charges that have built up over time.
If you’re over the age of eighteen, you’ll have probably already been offered credit, like an overdraft or a credit card. And the idea of money being put straight into your account can be very tempting at times. Always remember that you need a good reason to borrow in the first place and a plan to pay the money back. If you don’t have both these things then borrowing probably isn’t going to do you any good in the long run. And don’t forget that you’ll be paying the money back with interest.
When it comes to borrowing, think in the long term. Keeping an eye on how you borrow now can save yourself a lot of stress later on in life.
Make sure you know your priorities
Some bills in life are more important than others and to make sure your finances stay straight you need to prioritise. The most important payments are:
• mortgage or rent,
• secured loans,
• council tax and any other taxes,
• child maintenance,
• magistrates court fines, and
• household bills.
The above are important because the consequences of missing them are more severe than missing payments on a credit card for example. Missing rent payments or secured loans can result in you losing the roof over your head. And to give another example, the very worst thing that can happen if you don’t pay your taxes is imprisonment! This may be unusual but it can happen, so you should always pay your taxes on time.
So if you’ve just moved out of your parents’ home and you’ve found yourself managing bills for the first time – don’t get in a muddle. Just make a list of everything you’ve got to pay and make sure the most important bills get paid first. Setting up Direct Debits for these bills can be a good way to stop you missing any payments.
Worry less – ask for help more
At Debt Advisory Centre, we hear a lot from people who were afraid to ask for help with their debts before they contacted us. And we know that debt can be a problem for some young people up and down the country. Our blog on young people in debt can shed some light on just how common this is and how some are finding it a struggle to keep up with all the demands on their money.
If this is you – don’t panic. There are debt charities that can give you loads of advice and our advisors are free to talk to anybody who is worried about not being able to afford their repayments. There is always a way to deal with debts that have got a little out of control, and you still have lots of time left to get back on more secure financial footing.
by Christine WalshBack to blog home