Financial Plans for Young People

Written By Russell Tym, Authorised Representative of MoneyLink Financial Planning, AFSL No 247360

Where should young people start when it comes to financial planning? As with everyone else it depends on personal circumstances, but there are many common issues.

The first step is to find a job. Any job will do initially, but one with advancement opportunity is best. It should teach you new skills and allow you to earn a pay rise. Even if the job isn’t exactly what you want stick at it while you look for another.

Moving out of home will usually require a bond equal to four weeks rent plus two weeks rent in advance, so it is essential to start a savings plan as soon as possible.

Young people should be very wary about credit card offers. The interest rates are extremely high. It is best to arrange a transaction card to draw your own money from the bank and avoid all credit cards.

The interest rates and payments are so high that having a credit card debt will severely limit your ability to borrow for a car or home.

To buy a car you must save a deposit. It’s also important not to overcommit to an expensive car. Buying a modest and practical vehicle is best. Second hand cars with low mileage offer good value. The urge to spend up big on fancy extras should be limited. Keep those payments down.

Buying a home is a major project. If you can save a twenty per cent deposit you will avoid several thousand dollars of mortgage insurance cost. If not, then save as much deposit as possible. The First Home Owners Grant of $7,000 is also available. Maybe Mum and Dad can help a little too.

There are many costs that must be budgeted for. While there are reductions in Government stamp duty for first home buyers it can still be expensive. Legal costs, registration charges and other fees also apply.

It is best to buy a home with potential. A smaller, older house needing some work that you can add value to is an ideal way to get started building equity and assets.

The modern mass produced mansions with everything included provide no opportunity for improvement. They also require huge mortgage payments that make it impossible to spend on anything else for the next ten years.

A house that can be improved will allow you to increase your equity in it more quickly. It’s value will rise as you improve it and you will be able to trade up in a few years with a much larger deposit.

It is smart to get an experienced real estate trader to help, perhaps a parent or relative. A better price can usually be negotiated. Don’t fall in love with something so much you agree to pay the asking price. Be prepared to lose the property. There will be plenty of other opportunities.

There are differences between home loans. Speak to several lenders. A basic, no frills loan will usually be about 0.5 per cent per annum cheaper and will often provide all the options you need.

Once it’s in place work on reducing the home loan. Pay a little extra each month. It will make a big difference long term.

After a few years the car should be paid off. It’s great to own and drive a car on which no payments are necessary. Stick with it for a while after it’s paid off rather than lining up for a new car loan. Cars only ever depreciate.

Work at building your career. Learn more, take more responsibility, and earn a pay rise.

The nine per cent employer super contributions are enough to start with. Funds do vary a lot though so get advice on which is best for you. Don’t just accept the one provided. It may not be ideal and cost you a lot long term.

Next, start an investment plan. This begins with saving by automatic debit into a separate bank account. When $1,000 is available invest it in a share fund or similar, together with a regular monthly amount of $100 or more by auto debit. This will be the beginning of financial freedom.

Disclaimer:

No investment advice provided to you.
This web site is not designed for the purpose of providing personal financial or investment advice. Information provided does not take into account your particular investment objectives, financial situation or investment needs.

You should assess whether the information on this web site is appropriate to your particular investment objectives, financial situation and investment needs. You should do this before making an investment decision on the basis of the information on this web site. You can either make this assessment yourself or seek the assistance of any adviser.