On leaving college / University you will probably find yourself in a combined situation of:
- Large Debt.
- Paying a high % of income on Rent.
- Struggling to Get On property ladder.
- Working hard in a new job.
If you have recently left college and entering into the field of work, these are my financial tips to help improve your long term financial situation.
1. Buy a House rather than Rent.
Buying a house gives many long term financial advantages. It is like an investment for when you are older. If things go to plan, a 30 year mortgage taken out when you are 25 means that you will be able to live rent free from the age of 55. In effect, this is like saving for a pension because it is improves your standard of living in retirement. Therefore, if possible try to buy a house. If this means not paying into a pension fund, no harm. Buying a house is a better use of money than getting a pension.
- But how to get on the Property Ladder?
Of course, in practice buying your first house is increasingly difficult. House prices have risen faster than incomes making it increasingly difficult to get a mortgage for even the cheapest house. If you find yourself in this situation, don’t despair, there are various things you can do to get a mortgage on a low income.
2. Keep a Clean Credit Rating.
Work hard to maintain a clean credit rating. Never miss repaying the minimum monthly payment. If necessary set up monthly direct debits to avoid missing payments. If you do, by chance, miss a payment consider writing to your bank explaining there was a mix up, e.g. lost in the post (it does happen)
3. Keep debts in Order.
Target the highest interest paying loans first. For example, most types of government funded student loans are at relatively low interest rate. In the UK, the interest rate is calculated according to the inflation rate. Therefore, it is advisable to make the most of these loans. Avoid, if at all possible, holding debt on credit cards, at 17%. If you do have debt charged at a rate such as this, work hard to pay off this debt first. Reconsolidating debt if necessary.
4. Keep Finance in Perspective.
If you are in your early 20s, don’t let finance dominate your life. Don’t worry if you can’t make significant savings. Your disposable income is likely to increase over time, giving chance for investment later in life. Don’t spend all your time working (apologies to lawyers, who don’t seem to have much choice.) Also, I feel it is a mistake to think I’ll kill myself working for the next 20 years and then retire when I’m 45. Maybe you will be able to retire when your 45, but, you may also regret spending the best years of your life just working and not enjoying life.
5. Reduce Unnecessary Expenditure, but don’t be a miser.
If you are struggling to pay your debts or save for a deposit. Look closely at your regular, and irregular outgoings. You will find that some are dispensable and add little value. Things like magazine, newspapers and extra drinks can be cut down, with little impact on standard of living. Put money towards things that really matter and improve living standards.