Many people in their 20s are too busy finding their way in the world of work and enjoying life to worry too much about saving money.
However, it’s never too soon to consider investing in your financial future, so here are some tips to get you started.
Pension Planning in Your 20s
Although you may think you’re donkey’s years away from retirement, now is the time to start saving for the day when you finish work for good.
If you have a work pension, it’s probable that you will only be paying in a small percentage of your wages and the final figure will most likely not be enough to retire on.
However, the good thing about pension saving is that your employer and the government also top-up your contributions; the more you contribute, the more they contribute.
If you’re not sure how much you should be putting into your pension, the general rule of thumb is that you should be putting away half your age from when you begin saving. Therefore, if you’re 25, this would amount to 12.5% in total.
Unlike older savers, in your 20s you can afford to take the long view, with riskier long-term bets with larger potential upsides.
By starting early, even a small amount invested each month could turn into a significant sum by retirement, due to the effects of compound interest.
Invest in Property in Your 20s
If you have the wherewithal, it’s well-worth investing in property. You should make a goal of getting on the housing ladder in your 20s.
For one thing, mortgage payments often come out lower than rent and if you own your own home it’s also a means of security and an asset.
The current climate has mortgage rates at all-time lows, so if you can find the deposit, two or five-year fixed-rate mortgages for first-time buyers can be appealing.
It’s anticipated that property prices are set to rise over the long term, so your investment could grow considerably in value over this period.
Start Saving in Your 20s, not Borrowing
If you have debts, you should always consider clearing those before you do anything else..
In the current climate, most debts, especially credit cards and store cards, attract a much higher interest rate than savings.
And although the current rock-bottom savings rates might be off-putting, it is important that you start saving when you’re in your 20s, especially if you wish to get on the housing ladder as previously mentioned.
At the very least, it is wise to at least gain an easily accessible emergency fund that could see you through three months of outgoings.
Investing Money in Your 20s
If you have a lump sum, it’s worth considering investing it in a fixed-rate bond for a few years, as long as you are confident that you won’t need to use the cash.
Generally, the longer the term, the better the rate you can get, so shop around for the best deal and be prepared to switch providers if the rate goes down or you can do better elsewhere.
Although you might be tempted to become the next Wolf of Wall Street and start dabbling in stocks and shares, this can be fraught with danger so always take professional financial advice rather than going it alone if you have considerable sums.
But, even a modest starting amount of £50 each month will quickly add up, especially if you take advantage of products like Stocks & Shares ISAs that allow you to save up to £20,000 each year, without incurring tax on the interest you receive.
When investing, always try to think long term, and look into spreading risk by investing through a fund or multiple funds, instead of large lump sums in individual stocks.
If you find it hard to put aside a set amount each month, there’s a several startups providing services which can invest on your behalf.
One such app is Moneybox, which promises to invest your spare change into a tracker fund by connecting to your a debit or credit card.
Remember that stocks can go down as well as up, and the past performance of an investment is not a guarantee of future value.
Ditching and Switching
In the current cutthroat market, banks are all vying for new clients.
Many offer new account holders tempting rates on current and savings accounts, providing that you pay in a minimum amount each month.
Some even pay you a cash-back bonus if you use your account for paying bills.
Take a look at your current account and see if you can do better elsewhere.