There’s no doubt that our school years are formative times for our friendships, self development and life lessons. Although these skills are all extremely valuable; there is one fundamental lesson left out of the curriculum: how to manage our money. Consequently, most of us end up teaching ourselves as we go along - something that Incredible wants to change. To get started, here are five things I wished I'd known about money earlier!
1. Time is your greatest asset
When it comes to your finances, the sooner you pay attention the better. Starting to keep an eye on your money and think about your financial future in your twenties or thirties - at a time when you typically have less money to save or invest than later years - can be far more valuable in the long term than waiting until you earn more money. This is especially true when it comes to investing, as starting early gives you the opportunity to benefit from compounding. Put simply, compounding is the gain you make on a gain. The result is that when you save money, as well as earning interest on the savings, you also earn interest on the interest itself. Compounding becomes more powerful the longer you allow it to happen, which is why starting to save and invest at an early stage - even if it’s £10 or £20 a month - can pay off hugely in the long run.
2. Automate as much as possible
We live in a busy world and at the end of a long week, it’s unlikely that combing through your bank statements will be front of mind. Moving around your money and making wise financial decisions can slip off the radar, but there is a simple solution: automating your money moves.
Setting up automatic payments can save you time, headspace and money when it comes to both saving and spending. If you have a credit card or payments that you need to pay monthly, make sure to set up a direct debit payment where possible. That way, your payment will automatically be taken from your current account on the due date so you can avoid any risk of missing a payment, which can impact your credit score and cause all kinds of unnecessary stress.
Automation is your best friend for saving and investing too, and one method to help you get started is to pay yourself first. Set up a standing order payment the day after payday so that every month, you send a set amount of money into your savings and investments before you start spending for the month. It might sound crazy, but it’s a tried-and-tested way to guarantee you set aside funds for your future, whatever the amount.
3. Small changes make a big difference
Remember that compounding we talked about? Well, it works when it comes to small changes too. Small shifts in behaviour can be subtle, but over the long term they can add up and make a huge impact on your financial health. Think about the expenses which take up a lot of money each month, yet you come away from the experience without a sense of satisfaction or enjoyment.
For example, do you end up ordering takeaway several times a week because you’re tired and have no food in the fridge? Is a taxi app your number one most-used app thanks to your timekeeping? Cutting out those small spends which don’t add anything to your life can free up an extra slice of money each month to put towards things you do enjoy or to boost your savings for the future. To read more about how small changes to your financial habits can lead to big results, head over to Incredible's blog on Atomic Habits!
4. More money isn’t always the answer
Hear me out on this one. Living in the western world means living in a society where money can be pinned up as the answer to all our problems. One thing that’s certain is that money can solve numerous problems - such as providing a roof over your head and removing the stress of unpaid bills - but there’s evidence to suggest that once your needs are met, you reach a point where more money doesn’t increase your happiness.
The trouble is that chasing more money for the purpose of simply increasing your earnings can be a never-ending cycle. Ultimately, there’s no limit to the amount of money you can strive for. Chasing money alone can lead you to make decisions that decrease your happiness, such as staying in a job you don’t like because you get paid well. When you have a working life ahead of you that could stretch into four or five decades, prioritise finding a career that you enjoy first and foremost!
5. Cheap can end up far more expensive
Money is often tight when you’re a student or young professional entering the world of work, which means that spending decisions are often dictated by the cheapest option available. Whilst it’s not always possible to go for an alternative option, there are plenty of examples where the cheapest option can turn out to be far more costly than originally planned.
Let’s start with one of the biggest expenses for any young adult: housing. Tempting though it may be to filter by lowest price first on RightMove, choosing the cheapest accommodation possible can end up stinging your bank balance. Before committing to a far flung flat share, check out any travel times and costs you might incur - not only commuting, but socialising too. If you work from home, find out whether your internet connection is fast and stable - or you might end up paying a fortune for coffee shop internet on a daily basis. Plus, don’t forget to check out the cooking facilities; a bargain room isn’t a bargain if you find yourself on Deliveroo every night thanks to a faulty oven or cramped kitchen space!
These five tips are a great way to start becoming more financially savvy, allowing you to take control of your finances and save for the future. Let us know which tips you found most helpful, and what else you wish you'd learned at school surrounding financial education!
