Smart.Happy.Money 15: Start right at the beginning - things to consider whe
Ok, here’s the situation. You have graduated high school or university and are launching yourself head first into the work force with your first ‘real’ job. It’s a scary time. You might have held some jobs while you were studying, but chances are, you haven’t saved a whole lot of cash. I know I didn’t save much as a 17-year-old washing dishes at Pizza Hut (remember when they had dine-in stores?) I’m talking about you starting your first real job, a full-time job that pays (hopefully) a decent wage.
You are about to enter a whole new world. Things are about to change for you. Let’s have a look at a few of the changes you are facing.
1: You are actually going to have money.
Let’s assume that you are living at home with your parents, your life is relatively low expense. Your disposable income is about to skyrocket.
2: You are about to spend a lot of time at work.
Work hours are long. Most of your time for the week will now be spent at work or sleeping.
3: Your responsibilities are about to increase.
Taking on a full-time position means that you are taking on a responsibility. To your employer and to yourself to advance your career and improve your life as you get older.
Moving from study to work is certainly one of the biggest transitions you will make in your entire life.
So, are there things you should be doing now to set yourself up for the future? Yes.
Are there things you should be avoiding now to set yourself up for the future? Also, yes.
What you should be doing
If you haven’t already got one you are going to be given a superannuation account. This is an investment account that 9.5% of your earnings will be forcibly saved into in order to help fund your retirement. Your first step is going to be to make sure that you only have one account. You may have one or more small super funds from your casual work while studying. Consolidate, consolidate, consolidate. Transfer all the funds into one account that you like the best. It may also be the perfect time for a chat with an advisor to see what super accounts would suit you.
2: Your safety buffer
I always recommend that 20% of someone’s net income should be put towards their financial goals. This is usually investments/savings or debt reduction. The earlier you start this habit the easier it will be for you in the future. If you can’t save $2 out of $200 you won’t save $20,000 out of $200,000. The first thing you should do with this money is put in place an emergency buffer to pay for unexpected expenses. This would usually be held in an interest-bearing cash account that could be accessed by the next business day. How much do you save into this buffer? That’s up to you, I would say a minimum of $5000, some people are more comfortable with $20,000. Now, it must be said that ‘emergencies’ do not include cheap flights to Thailand, it is for car breakdowns, dental emergencies etc.
3: Build an asset
With your buffer in place you can look to begin an investment with your savings. You can start an investment portfolio with a few thousand dollars and the addition of $100 per month. Starting this early will put you ahead of the pack in wealth creation. How to do it? Talk to an advisor for some ideas.
Want some more info on handling your new cash flow? Check out our recorded webinar on the 50:20:30 cash flow management system.
What you should be avoiding
Aside from the previously mentioned ‘multiple super accounts’ the big thing to avoid at this stage of your life is bad debt. Bad debt is debt that doesn’t increase your wealth and give you an income, like a loan for an investment property does or a mortgage on your house. I’m going to assume that you aren’t ready to buy a house right now. Bad debt funds your lifestyle and should be avoided. Credit cards, personal and car loans.
Once your bank sees regular income coming into your account you will magically start receiving letters from them saying that you are a great customer and have been pre-approved for a credit card. WARNING. Banks are not nice, they are not your friend, they are sending you this offer so they can trap you for life. A $5000 credit card will take 50 years + to pay off if you pay the minimum and will costs you squillions in interest.
You don’t need a credit card for emergencies, that’s what your buffer is for. You don’t need a loan for a car, as soon as you drive out of the lot the car is worth less than the loan and you could run into trouble financially. Don’t borrow to look richer than you are, actually become richer than what you are which can and will be done over time.
Setting yourself up at the beginning of your working life and avoiding a few of the traps thrown your way will mean that you are on the path to success. The start of your working life is an exciting time, you will meet new people, try new things and build real wealth if you plan right.
Ben Graham-Nellor is an advisor, coach, blogger and speaker who has worked in the financial services industry for over 15 years.
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The information in this communication has been prepared on a general advice basis only. The advice has been prepared without taking account of your specific objectives, financial situation or needs. Accordingly, you should, before acting on the advice, consider the appropriateness of the advice having regard to your objectives, financial situation and needs. In cases where the advice relates to the acquisition, or possible acquisition, of a particular financial product, you should obtain a Product Disclosure Statement (or other relevant information statement) and consider such document before you make any decision about whether or not to acquire the product. For these reasons, it is imperative that you seek advice from your financial adviser before making any investment decisions.