*DISCLAIMER: this article does not constitute professional financial advice and is not intended to be relied upon by users in making any investment decisions. Independent advice should be obtained before making any such decision.*
Throughout university, I realised that many young people want to manage their wealth in the best way but have no idea how to go about it. My brother is very financially savvy and has always informed me of the different options out there, so I'm here to pass on some of the things I've learnt along the way.
1) Budget
If you always seem to be dipping into your overdraft or savings, it's essential to budget. There are many methods for this, including the 50/30/20 method, in which 50% of your income goes towards your needs, 30% towards your wants, and the remaining 20% towards savings or paying off debts. If you're struggling to budget, apps like Monzo and Natwest can be great tools to see where your money is going and what your spending habits look like. As a general rule of thumb, if you can't afford to buy something twice, you can't afford it. To be honest, I've always been very good at saving as I don't enjoy buying many material goods and since university have always split my income up into different accounts automatically.
2) Have separate bank accounts
Rather than simply having one current account for everything, I like to keep separate accounts for different things so there's a limit on my current account. For example, with my regular bank I have a current account, a savings account, and a Cash ISA, however I also have savings accounts with two other banks, credit cards, and stocks and shares ISAs. Every payday, about 50% of my income goes directly towards my investments, and the majority of the other half goes towards my savings so only a small amount stays in my current account for monthly spending. Unlike most of my friends, I've been putting money aside for my retirement plan and mortgage for several years now, and if like me you are planning on buying in London, I'd recommend you do the same as soon as possible. There are many accounts you can open and it's essential that you look into the differences between them in order to find the best option for you.
3) If you earn more than you spend, get a credit card
As soon as I turned 18 I got a credit card in order to build an optimal credit score. This is important for larger purchases - for example, if you want to take out a mortgage, one of the factors that banks will consider is how likely you are to pay the money back, which is what your credit score shows. Importantly, you shouldn't get a credit card if you overspend as this will lower your credit score. Instead, I use one of my credit cards for regular subscriptions (e.g. Netflix, Apple Music etc), which I know I can afford and have a standing order which pays off the credit card automatically every month. My other credit card (AMEX) is used for bigger purchases as it earns travel rewards and offers many good deals, but only when I am 100% sure that I can pay it off that month (i.e. I have the money in my current account). If you travel often, an Amex Gold will allow you to access lounges and can provide very good discounts on flights and accommodation too.
4) Have more than one income stream
Obviously this is much easier said than done, but having multiple income streams can offer financial freedom and comfort so that in the event of a recession or redundancy, the impact is likely to be reduced. This can be anything from a side hustle, such as a blog or tutoring, to being a non-executive director, but passive income is even better, which brings me on to point 5:
5) Invest
This is particularly important in countries with market-based financial systems such as the UK and the USA, as opposed to countries with bank-based financial systems such as Germany or Japan. Many parent's teach their kids that the goal is to save up and keep money in a savings account. And this is good advice up to a point, but wealthy people don't do this for a very obvious reason. Generally speaking, leaving money in savings accounts decreases its worth due to inflation. It also doesn't help the economy, as new jobs aren't generated and money isn't spent locally. Provided you have 6 months to a year's worth of savings, the excess should be invested. Whether that be in art, property, bonds, or stocks and shares, investing is one of the best ways to increase your wealth passively. Personally, I think the property market is a great investment, especially in cities such as London where there is a constant influx of people, and it either prevents you from wasting money on rent, or offers you a second income as a landlord. Unfortunately, this requires a substantial amount of money so most young people will probably find investing in stocks and shares, bonds, or forex trading to be more realistic. Each of these investments offers different levels of risk and benefits, and even within each of them the results can vary greatly depending on your choices. Personally, I like having stocks and shares ISAs in which I can build my portfolio and select the risk level. Higher risk can lead to higher returns, but there's also the option to play it safe. If you are interested in investing in stocks and shares, I'd recommend using a platform initially such as Vanguard, Hargreaves Lansdown, or Natwest Invest as these guide you through the process and can do a lot of the work for you. Just beware of platform fees as they differ greatly and can add up. Each person invests as they choose, however I add to my investments monthly and aim to leave them for 5-10 years so that they accumulate and act as a passive form of income. The more you invest now, the more you'll have by the time you retire so the younger you start, the better.
6) Maximise your employment benefits
Many people simply don't take the time to look through all of the employment benefits on offer, however these can make a massive difference without reducing your net income. From a good pension to life insurance and reduced gym memberships, employment benefits can make a big difference in your spending habits and quality of life. A solid pension plan is essential and the earlier you invest in it, the better. If you only start investing when retirement is approaching, it's going to be too late. If you're busy now, you're probably only going to get busier in the future,so make sure to put aside an hour or two one day and look through the options thoroughly.
7) Educate yourself on finance
This doesn't mean sitting down with a finance textbook and reading through it. Many Instagram and TikTok accounts are dedicated to sharing financial tips, alongside YouTube channels and bloggers. Reading certain magazines or newspapers will offer insights to current events and how different markets are being affected (which might influence what you invest in). However, simply surrounding yourself with people who are aware of the different options out there and take an interest in wealth management and finance will allow you to learn about the best ways to spend and save money, and how to be financially savvy.
Although money doesn't buy happiness, but it can certainly solve certain problems and increase your quality of life (Casey Neistat explained it perfectly in this video [1:28 to 8:46]). Making the right choices in your teens and twenties will set you in good stead in the long-term and your future self will definitely appreciate you for it.
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