5 Financial Tips for Newly-Employed Young People
Summer. A time for barbeques, trips to the beach, ice cream and, for many teenagers and young adults, their first jobs. What better time, then, to inform the newly employed about sound financial practices, before they’re tempted to spend all of their hard earned income having a good time?
For many, the pursuit of fun is more of a priority than saving money. Are they right?Just turn on the radio and you’ll hear any number of songs about frivolous consumerism. In the case of one of this summer’s ubiquitous songs, "Time of My Life", the rapper Pitbull (aka Armando Christian Pérez) celebrates the disastrous practice of spending money he doesn’t have:
“I knew my rent was gon' be late about a week ago
I worked my [butt] off, but I still can't pay it though
But I just got just enough
To get up in this club
Have me a good time, before my time is up
Hey, let's get it now”
Instant gratification is tempting, but making efforts to teach young adults how to adopt sound fiscal practices will set them up for a lifetime of financial solvency and independence. And, with the right financial savvy, young consumers could presumably afford to spend a little extra when it’s time to “have a good time.” Here are five tips to share with the newly employed people in your life:
Save, Save, Save! Saving can be as simple as setting aside a certain portion of your pay to go directly into a savings account each pay period, rather than in your current account, from where you will spend. If your employer offers direct deposit, select a specific amount or percentage of your pay to go directly into a savings account. If you don’t have direct deposit, you can commit to put 10 percent of your pay into a savings account. Use a direct debit or standing order to take the money from your current account as soon as it gets paid in. You can’t miss what you never saw in the first place.
Learn to Budget If you don’t know how much money you have coming in and how much you have going out every month, it is difficult to plan. Assess how much you make each month. Then, figure out what fixed costs you have—rent, utilities, commuting expenses, gas, discretionary spending, and other one-time expenses like holidays, gifts and vacations. That will give you a better sense of what you can and can’t afford.
Get Creative
For teenagers: When I was a teenager, my friends and I started a babysitting service. (Think the 1980’s book series The Baby-sitters Club.) the self-created rules of the business partnership required us to put a certain percentage of each babysitting job into our organization’s savings account at a local bank. We also had a fleet of “associates” who we called on when we couldn’t work. They were required to pay us 10 percent of what they earned. By the time we decided we were too old to babysit, we had more than £1,200 in the bank (back in the 1970s!).
For young adults: While large purchases and expenses—a home or a car, or starting a family—may seem a long way off, preparing for the future now, financially speaking, can put you in a better position to make those large financial decisions. So what can you do? Forego cable or sky television for a Netflix subscription, bring your lunch to work most days, skip Starbucks or Costa and drink the coffee offered at work or make it at home, buy a few quality items of clothing and avoid cheap, ill-made pieces. Consider "value for money" as your new motto. Also consider taking a second job, such as house sitting, pet sitting or dog walking. Got a hobby that you love? See if you can find a way to make money from it.
Avoid Debt It’s simple--if you can’t afford something, don’t buy it. Instead, devise a plan to save up until you can afford to purchase the item without debt. Sometimes waiting can make you realize the item isn’t that important, or you might find a way to make this purchase fit into your budget. Another way to avoid debt is to learn the difference between your wants and needs. Also, be mindful when signing up for a credit card that it should be used responsibly. While convenient, and at times, necessary, credit cards make it easy to overspend.
Avoid trouble with the tax man
Ask for Help Becoming fiscally responsible takes time and guidance. Don’t be afraid to ask for help! Friends and family may have different suggestions for how to save or invest your money, or handle University or College loans. Sometimes those that know you best can offer solutions that will best suit your needs. Ask your friendly, local accountant for advice - s/he should be able to provide a free initial consultation. If you provide young people with sound guidance on fiscal responsibility early in their working life, you are setting them up for a lifetime of financial stability and good decision making. And, hopefully, now and again they will be able to afford to have, as Pitbull says, the time of their lives.
Extracted and adapted from an article by Lauren J. Sternberg, Communications Manager, American Institute of CPAs