Money Management /

Important financial habits to learn in your 20’s

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While effective money management may be the last thing on your mind, it is an important topic to have a good grasp of. Whether you’re saving for an adventure in the mountains of Bolivia or aiming for a deposit on your first home, the financial habits you develop in your early 20’s could have considerable consequences as you get older and start to wind down. While we can't offer you a degree, we can start by pointing out some simple habits that could pay off in the long-run. 

Establishing your financial goals

This is essential, without goals you have nothing to work towards. Consider starting small by focusing on the short-term. As you gain more confidence in your ability to reach goals, you can start thinking about the bigger picture and how the decisions you make today may affect you in the future. It can be a difficult task to understand some of the potential repercussions, but it can be worth the effort. Consider some scenarios; for example, the decision to either rent or save for a home may result in significant differences on how you choose to manage your financial habits throughout your lifetime.

Contribute more to your superannuation fund

It can be easy to splurge once you’ve been offered your first full-time job, rolling in the cash can increase the temptation to spend and therefore inhibit your financial growth. One way to grow your nest egg is to negotiate with your employer to increase super contributions by salary sacrificing1. This way, you can reduce your take home pay by putting more into your superannuation fund - this can have a positive impact in two ways, by decreasing the temptation to spend on discretionary items (because you have less money), and assist in accelerating the growth of your long-term retirement nest egg. 

From little things big things grow

Identify the difference between a need and want

Some periodic self-reflection of your prior spending habits can be an eye opening experience. For example, by purchasing a 6-month magazine subscription instead of putting away the money into a savings account, may set yourself back from your long-term financial goals. Small purchases like these can add up, so, before making a ‘want’ purchase, consider the bigger the picture by exercising some self-restraint on these types of purchases.

Build a good credit score

The journey to a healthier financial future isn't just about saving; many young adults will often require access to credit at some point. However, recent Equifax data revealed that millennials were most at risk of a credit default within the next 12 months2. It’s critical to avoid such defaults; consider setting yourself apart from some of your less knowledgeable millennial counterparts by establishing a good credit rating early on.

As you meander your way through your early adult life, the need to establish smaller lines of credit can pop-up; these can include mobile phone plans, utility accounts and other services that can help build a credit profile3It’s important to not overextend yourself as you’re likely going to want to build a positive credit profile for big ticket items such as car loans and home loans. One way to avoid a negative credit rating is to ensure you pay bills on time to minimise the risk of overdue debts4

May your past credit history be stacked in your favour 

Make your savings plan tangible

Saving regularly, even if it's only small amounts, quickly adds up and could give you more financial freedom in the future, whether you're looking to buy a house, own a car or simply have access to an emergency fund5People who are the most confident about achieving their objectives know how much money they need, so consider developing a clear savings plan and regularly review your progress6. Telling friends and family about your goals can also help you stick to them.

Choose the right savings account

One of the biggest challenges for any saver is battling the temptation to dip into your nest egg for a big-ticket item or luxury purchase, such as the latest smartphone or a new wardrobe. Fortunately, there are savings accounts available that can help you resist the urge to splurge by offering bonus interest payments if you make regular deposits and avoid any withdrawals. This is a win-win situation, as it helps you build your savings even quicker, while also encouraging you to develop great money management habits for the future.



1 Australian Federal Government, Australian Securities and Investment Commission, 'Contributing extra to super', April 2017

2 Equifax, 'Fourth annual Veda Australian Credit Scorecard reveals who is strongest and who is struggling in the world of credit', October 2016

3  Australian Financial Review, 'How to build a good credit rating', February 2016

4  Australian Federal Government, Australian Securities and Investment Commission, 'Credit scores', April 2017

5 Australian Financial Review, 'The best way to save in your 20s', June 2014

6 Australian Federal Government, Australian Securities and Investment Commission, ‘How Australians save money, October 2016

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