A thorough understanding of financial matters is essential, and the younger these lessons are learnt the better. Many young people start work before they gain a firm grasp on how to handle their finances, which can lead to problems with their personal finances further down the line. Recent debt statistics released by Credit Action, a financial capability charity, highlight the extent of the debt problem in the UK.
Currently in the UK, the amount of outstanding personal debt stands at £1.424 trillion, which is nearly as much as the UK’s Gross Domestic Product for the year 2012-2013. Some of the most shocking figures released by the charity are as follows:
- The average UK adult owes £28,981 including mortgages. This represents 118 per cent of average earnings;
- The total interest paid everyday on UK debt is £166million;
- The daily value of every purchase made on credit and debit cards is £1,373 billion;
- The number of people made redundant everyday in the UK is 1,454;
- A property is repossessed every 17minutes.
These shocking statistics show just how important it is for young professionals to take control of their finances as soon as they start earning. Here are some tips that could provide a sound basis for their financial futures:
Set up a savings system
One of the most important aspects of financial management is to set up a savings account into which a small percentage of your earnings is deposited each and every month. A savings system can be created whereby a predetermined amount can be automatically transferred from a current account to a savings account every time you are paid.
When you’ve just started life as a young professional the temptation to spend, spend, spend is difficult to resist. A degree of spending is healthy, you’re young and this is the time when your earnings are likely to be at their lowest, so your wage probably won’t go far, but making provisions for later life, no matter how far away it seems, is a good idea. The longer you make contributions into your pension, the more time your pension pot has to grow. A pension scheme whereby your employer matches the proportion of your income you pay into a pension each month is an excellent start, as this is essentially free money.
If in doubt, seek advice
With so much to take in and new products and trends emerging all the time, the amount of information available can be overwhelming. Young people with a general interest in money management usually do better financially. Parents and friends can be a good source of advice, but if you’re still unsure as to how best to proceed, the Money Advice Service provides free, independent and unbiased financial advice for young people. If in doubt this is an excellent resource to turn to.
Create a budget
Budgeting is a great way of seeing exactly how your money is being spent and how far it will go, helping you to live within your means. Making sure you do not spend every penny you earn each month is an excellent lesson to learn early on in your career. A budget can also help to identify the development of bad behaviours before they become habitual.
The best things in life are free
It is perhaps a little naive to think that we can live happy and fulfilling lives without a penny to our name, but some of the best things in life really are free, or at least pretty close to it. The latest technology and expensive cars do carry a certain lure, particularly for the young, but there are plenty of hobbies out there which you can enjoy without breaking the bank. Going for a run, playing sports and socialising with friends are great ways of whiling away an evening without having to spend extravagantly.