Managing personal finances isn’t taught in school or university.
This can make it challenging for some young adults to work out how to manage their money, deal with debt, get a loan, manage a credit card or understand interest rates.
Below are five simple steps that young adults can (should!) consider when it comes to finances.
1. Know your limits
Some parents are strict with money, and some aren’t.
You may know a lot, or you may know very little. But either way, learning self-control is vital when it comes to your finances. You might be able to get a credit card in a few minutes, but do you understand the implications of your actions?
A credit card may seem like easy money, but if you don’t have the money to repay the balance you may quickly see the balance increase. From here, you may be penalised financially or be charged additional fees. Yes, it could easily become a spiral!
But knowing yourself is vital here. If you don’t think you can control and keep on top of debt, don’t get a credit card. If you want something quickly, maybe you need to save up (or visit the bank of mum and dad).
2. Take control!
If you don’t know anything (or even if you think you know a lot), reading up on financial health can be extremely beneficial. In Australia, we have been in “Barefoot Investor” mania for some time. No matter what you think of Scott Pape, his simple, easy to understand approach to finances can be effective. Even the simple things, like looking for a low fee bank account, can make a big difference to your finances now and into the future.
You can also talk to people – a parent, friend, bank, financial counsellor. Gathering different opinions can help you to shape your decisions. And control goes beyond knowledge. Do you tap for food or drinks when you’re out? Is that the best option? You could be spending heaps! Why not take out $50 and watch your money a bit more closely?
3. Put a tiny bit aside
And when we say tiny, we mean tiny. Try for $5 a week. That’s still $250 at the end of the year. If you can shift that to $20, you’ll have over a $1000.
From here, you can also work the magic of compound interest. If you can put that small amount into an account that is constantly growing you would be stunned at how much you’ll have down the road.
Our super projection calculator can help you get an idea of the benefit a little extra may do to your balance later. Fill in your details and see where you get to. Then go back and do it again and add in a small contribution (say $5 a week) and see what that does to your balance!
Any concerns? Get in touch with our limited advice team and they can help you with these calculations.
4. Understand tax
You don’t get to keep all of your pay. Some of it is taken in tax. Do you know how much? Below should help.
Australian income tax rates for 2018/2019 and 2019/2020 (residents)
|Income thresholds||Rate||Tax payable on this incoome|
|$0 - $18,200||0%||Nil|
|$18,201 - $37,000||19%||19c for each $1 over $18,200|
|$37,001 - $90,000||32.5%||$3,572 plus 32.5% of amounts over $37,000|
|$90,001 - $180,000||37%||$20,797 plus 37% of amounts over $90,000|
|$180,000 and over||45%||$54,096 plus 45% of amounts over $180,000|
Understanding these rates, and how much you will get in “take home” pay can help you to better keep on top of your finances.
If you want to know what you’ll get, you can use a calculator.
5. Learn more about what your superannuation can do for you
Super is more than just something for retirement.
Similar to our compound interest example above, the more you put into your super early, the more you have to grow. So if you are able to contribute more (for example, through salary sacrifice), that may be beneficial when you get round to retirement. And yes, we understand it may be a long way off.
If you want to talk to us, we are always available. Call us, email us or use Facebook messenger – we’re here to help.