Source: Finance Derivative
Starting out on the right track with personal finance is extremely important in today’s economy. It means that young professionals can move away from living paycheck to paycheck, as well as get themselves better prepared to handle emergencies (like the ones we’ve all experienced in the last few years). To this end, members of younger generations –– 72% of Gen Zers and 55% of Millennials, according to the Financial Times –– say that they would like to be able to save £1,000 in the bank, given the opportunity. These days though, that’s easier said than done!
Beyond general economic uncertainty brought about by the pandemic (and now the shockwaves from Russia’s invasion of Ukraine), there are also specific sectors of the market in the Netherlands that make things difficult on young people. For instance, the NL Times reports that housing costs were 18.7% higher in the last quarter of 2021 than they were one year prior. And a recent piece at Observant indicated that inflation could lead to rising costs for education as well.
Given issues like these, it is only fair for young professionals to wonder how they can manage to save money, and what they ought to prioritize when it comes to their finances. To help address these questions, we’ve provided a few words on sensible financial priorities for those in this demographic.
Pay Off Debt
Paying off debt is front of mind for young professionals all over the world. Even before the pandemic, in fact, a Vice survey of millennials revealed debt to be among the chief concerns. Some claimed they had no option but to get into debt to pursue education; one described “losing drive” because of an inability to escape responsibilities like debt. The bottom line is, it’s a widespread and extraordinarily burdensome problem.
For this reason, it should also be a priority. How you pay off debts will depend to some extent on your specific situation, but it’s important to have a plan front and center within your personal financial strategy. For many, it’s the snowball method that works. This means paying the minimums as needed for all your debts, and putting any leftover capital toward the smallest one first. This knocks out that debt so that interest stops accruing, and you begin to have more money to put toward your remaining debts –– and so on.
Start Investing for Retirement
We noted in our previous piece, “5 Retirement Planning Mistake to Avoid” that some 48% of people haven’t yet calculated how much money they need to save for retirement. This is something that everyone within that percentage ought to address. But young people in particular would do well to start preparing now, and work out how much they’ll need in order to live comfortably and cover necessities by the time they retire.
Yes, it’s probably a long way off, and you can’t plan decades of saving to perfection. But it’s better to start preparing now –– and saving. Bear in mind that many retirement plans involve compounding interest, meaning the earlier you start putting money away, the more time you give it to grow. Additionally, some European plans dictate the age of eligibility for retirement according to how long one has paid into a plan. So again, the earlier you start, the better.
Get Into the Habit of Budgeting
Creating a budget can sound overwhelming, but in reality, getting started is as easy as grabbing a notebook and a pen and jotting down every expense and form of income you have. From there, you can organize it all into more detail in order to set up a sound and informative budgeting system.
A guide to budget components at AskMoney does a helpful job of breaking things down into “main” components –– pure income and expenses –– and more detailed considerations that young people need to take a look at. These might include freelance and side project earnings (for income) and breakdowns of essential versus discretionary spending (for expenses). Once you establish these categories, you’ll begin to gain a clear picture of what money you have at your disposal, where you might save more, and how and where you can afford to spend on a monthly basis.
Work on Emergency Savings
We’ll knock on wood here of course, but having an emergency savings fund is essential for everyone. The specific amount you aim to set aside will depend on your needs, responsibilities, and means, but broadly speaking, a write-up at Time Magazine recommends somewhere in the neighborhood of three to six months’ worth of expenses.
This is where budgeting can come into play. If you establish a reliable estimate of your monthly expenses, you can multiply that by six. Target that amount for your emergency savings, and you should ultimately establish a big enough cushion enough to deal with most of what life may throw at you.
Find Ways to Save Money
Having that budget is a great start, but sticking to it and saving money is even more important. Doing so allows you to pay your bills and other necessities, and save money for the future (or for specific needs you’ve identified). Having a budget also allows you to visualize how much you can spend on things like a fun night out, or that monthly subscription to a video streaming service, without going over your budget.
Some examples of how to save money and therefore live within your means as a young professional include getting a roommate or two to save on rent and cutting out any unnecessary monthly or yearly subscriptions. You might also consider eating at home more often rather than going out to restaurants or getting carry-out. These all sound like fairly small and simple steps, but they add up. A few years ago, for instance, Forbes estimated that eating out on average costs five times more than cooking at home. Find a few savings opportunities like this, and you may just find that you have more money at your disposal quite quickly.
With so much economic pressure on young people today, it can be difficult to sort through priorities. Once you do, however, you can focus on actionable ways to improve your personal financial outlook. Pay down debts, stick to your budget, and prioritize savings, and you’ll be well on your way to making the absolute most of what you earn –– and setting up a more comfortable future.
