Money matters for 20 somethings

Our attitude to money and investments change as we age. In this series we look at each decade of our financial life and look at the relevant financial strategies we need to address. The first decade of our financial adult life is in our 20s. Experts tend to say that 20 somethings do not take enough risk. At this stage of our life we tend to live at home, have low living costs and correspondingly higher disposable income. As we get older our income tends to increase but our cost of living tends to increase at a greater rate particularly when we move out of home. What 20 somethings need to consider: 1. Improve your financial literacy Whilst experts say that most 20 somethings do not take enough risk it could be equally argued that they don’t take calculated financial risk because they do not know what to do. To alleviate this knowledge problem we need to read more financial literature. There is plenty of information on the web. But beware, seek advice on strategies not on products. There will be numerous organisations wanting to sell you their products. You need to research what investment strategies will suit you before you discuss what product to invest in. Also, when reading financial literature see who it has been written by. For example, is the literature recommending you purchase an investment property has it been written by someone with a vested interest, such as a real estate agent. Correspondingly, if it recommends shares was the article written by a stockbroker? 2. Education People with degree qualifications generally earn more income than those that don’t have a degree or did not complete their degree. So completion of your studies would be an important factor to consider if we want to increase our financial wealth. 3. Save for a home deposit From my experience the sooner you save for a deposit on a home the sooner you will be financially independent. Our research indicates that if you were to buy a one bedroom home unit, the monthly cost on the loan repayment for that property would be greater than the cost to rent that property for up to nine years. After nine years the mortgage repayments would be less than the rent you would have to pay. You can summarise from this that the first nine years will be financially challenging compared to renting. After nine years it will be easier as the rent payable would have been more than the loan repayments. So the moral of the story is: (i) the sooner you start the sooner you get through these nine years. (ii) don’t overextend yourself. Your first property does not have to be your lifetime palace. Buy something that you can afford. You should look at buying your first property so that you do not rent for the rest of your life. Your first home is about financial security not wealth creation. Should you require any information on financial strategies please contact Peter Quinn by submitting an online enquiry or calling us on +61 2 9580 9166 to book an obligation free appointment. The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.