The i newspaper recently reported on “The top 10 things parents most wish they had learned at school”. Unsurprisingly, the top 3 all related to money:
- How to save money
- How to organise finances, such as budgeting
- How to invest money
We recognise this to be a problem and are currently exploring finance education for the children of Serenity clients – more on this very soon.
The question is, what do young people need to know to develop effective money habits if they are going to become financially secure. What actually is the role of money, and what are the top tips we could impart?
The role of money
- Worrying about money is normal and healthy. It is an important part of life. But don’t worry about money so much that it controls, defines or dominates your life.
- Money alone can’t make you feel happy. Although money can alleviate sadness and offer greater life choices and security, on its own, it can’t make bring happiness and fulfilment/
- Comparison is the thief of joy. Don’t judge your success and value as a human being on the amount of money you earn, spend, or accumulate compared with others.
It is crucial to develop good money habits as early as possible. How you manage your money in the first 10 years of your adulthood will form the basis of your relationship with it for the rest of your life.
Jordan’s 8 Top Tips
- The golden rule: spend less than you earn. Someone earning £100k per year but spending £100k per year, is less wealthy than someone earning £50k but spending £20k
- Maintain an emergency cash reserve of at least three months’ living costs. This will help you cope with the inevitable but unknown future fluctuations in income and spending.
- Avoid all non-mortgage debt (credit cards, buy now pay later). Nothing is worth paying more to own or experience, by incurring interest or reduced capacity to save each month.
- Save and invest at least 20 per cent of your net income for the long term. Ensure you get the maximum amount of any employer and state contributions to a workplace pension.
- Automate regular saving so that money is set aside on the same day that you get paid. You can then spend what’s left. Pay (save) yourself first!
- Your most valuable resource is you. The cumulative value of your potential future earnings will be huge. Look to maximise this by investing time and money improving your skills, knowledge, contacts and reputation to maximise your annual income.
- Look to get rich slowly. Keeping your cash in the bank is no way to build wealth. Investing for the long term will. Money which is invested tends to increase in value over time. It does not happen in a straight line, but hopefully, a good investment will outperform inflation over the long run, so the value of your money increases.
- Stick to the plan. If you have build a financial plan with a clear mind, don’t make emotional decisions around money when the unexpected happens.
Money problems inevitably causes stress which will impact on both your mental and physical health. Learning how to manage your money early in life can help to avoid a lifetime of pain and worry. It won’t be easy, but it will be worth it if you end up with more freedom, choice and security.