For many young workers, after rent, living expenses, student loan or credit-card payments and incidentals, there’s not much left over, making it difficult to even imagine saving.
For those without jobs, it’s easy to get into debt just paying for essentials like food. Pleasure has to be taken where you can get it. Saving seems impossible.
A report into debt by Demos found that 22% of 18-to 24-year-olds say their debt has ‘increased a lot’, compared with 4% of those aged over 65.
A relatively small number of young people (30% of 18-24 year olds and 22% of those 25-34) put their debts down to investing in their future (regarded by Demos as a positive cause of debt). But the majority feature negative explanations for debt, including unexpected expenses (28% and 35% for the two age groups) and help to pay for the basics – 27% and 28% respectively.
Managing money can be difficult for young people. They don’t have much, generally, and their motivation to save up for the future is weak. When you’re young, ‘the future’ is either tomorrow or a long way off – and retirement is so far away, it’s unthinkable.
Living in the moment – having fun now and worrying later – is the strategy of many young people, which accounts for rising credit-card debt. So how is a 20-something to save? Here are some strategies to support young people with budgeting – or even to use for yourself:
Set goals. Start tracking your spending. You might be surprised to see where your money is actually going.
Use the 50-20-30 rule: Look to spend 50% of your budget on fixed costs like rent, utilities and car payments; 20% toward financial goals like building an emergency fund, paying off credit-card debt or saving; and 30% toward flexible spending like groceries, entertainment or shopping.
Prioritize setting aside one month’s net income in a separate savings account for emergencies. Ultimately, work toward saving six months’ income.
Next, work on paying down so-called “bad debt,” like high-interest credit-card debt.
Automate. Set up a direct debit or a recurring automated transfer so that a fixed amount goes directly into your savings account without ever touching your current account.
Self-audit. Think about all the various subscriptions you have to magazines and entertainment sites like Netflix, Hulu and Spotify—or even satellite or cable. Do you really need all of them? Cancel at least two subscriptions.
Just say no. Going out, meeting friends, and being sociable often costs money – for eating, drinking, travel. If you do it often, it all adds up. Plan for the month, budgeting for known, important events like a friend’s birthday dinner. If other spontaneous invitations come up, you can choose whether or not you say yes.
Cash only. If you have a tendency to overspend on credit cards, go all-cash. Abandon your credit card and carry sufficient cash for what you need that day. If you run out of cash, you can’t spend any more.
With some financial understanding and planning, young people can have fun today, and feel secure for the future.
Founder, Arthur Coaching
Arthur trains individuals to become professional Young People Coaches. Our mission is to facilitate access to quality leadership coaching for young people.