If you’re a young person it may feel impossible that you’ll ever be wealthy. The generations before us were the wealthiest ever and had many advantages such as fast increase in home equity along with access to cheap mortgages. For many people under 30 home ownership feels out of reach and bank accounts are often low. Here’s a few ways you can focus on your finances at a young age, which will help you become wealthier in the future.
Index Funds or Managed ISA
Putting money into an index fund or a managed fund will mean your money will naturally grow at a rate much faster than the average savings account. Funds which are linked to the stock market will track the overall movements, so overtime you’d expect your money to grow at the same pace of the market and beat inflation. If you’re in the UK you can get a Stocks & Shares ISA – this is a tax free way to invest your money in the stock market which is often through index funds, so you won’t be picking which stocks to be winners. In the US there are similar schemes like the Roth IRA. You can start these accounts with as little as £50 and the most important thing is to keep investing regularly. Set up a direct debit from your bank account to pay into your fund, just £100 a month over 30 years, at an interest rate of 7%, would leave you with a fund of £122,402 (of which £86,352 would be profit).
You may not be thinking about life insurance because your chances of dying young are statistically low. You may also not have a mortgage to protect or any dependents. However, getting life insurance when young means you lock-in your price. So if you’re in your 20’s you could lock in over £200,000 of life insurance and pay under £6 per month, for the next 25 years. If you didn’t get the insurance until you were in your 40’s you’d be paying almost double that. So help your future self have low costs for great value by buying life insurance today.
The best thing you can do as a young person is to save your money. Think about where your money is going and ask yourself if you really need that new shirt or dress, whether you have to get the nicest hotel room or whether you can purchase a cheaper car model. Budgeting is the art of planning where you will spend your money and then sticking to it. When you get paid by your job you need to first pay your rent or mortgage, then your bills. Put money aside for important living expenses such as food. Then see how much you can invest in your index funds. Pay your life insurance, and then what’s left over is for your day-to-day living and fun money. However you don’t have to spend it just because you have it. Put money aside for a rainy day or invest more into your ISA for a better retirement.