Financial Priorities in your 20's and 30's
When you are in 20s and 30s, you're just starting out, establishing yourself in your career or perhaps beginning a family. You probably have a hecs debt and maybe credit card debt as well. It may be a struggle to make your weekly wage cover all the expenses associated with renting or buying a decent home and furnishing it, building a professional wardrobe, driving a reliable car, and having a social life. Retirement seems light years away.
Do not be fooled. Now is the time to start planning for the rest of your life.
Your greatest asset in your 20s and 30s is not money, it's time. The decisions you make and the actions you take (or fail to take) now will have an intense effect on your future. Each dollar you save in your 20s can be worth ten times as much as a dollar saved in your 40s, so your 20s and 30s are prime time when it comes to saving for retirement.
Here are some tips on what you should do now to set off in the right direction for a lifestyle and retirement you dream of.
1. Pay Off Your Credit Card Debt
Compounding interest on credit card debt is your number one enemy. Make paying off your credit card debt a top priority. If you have savings, use them to pay off the debt with the highest interest rates. It doesn't make sense to pay interest of 13 to 18% or more on your debt while your savings are earning a measly 1 or 2%. Use savings that are earning low interest rates to pay off your 10 to 20% credit card debt, and you'll immediately earn a guaranteed tax-free return of 9 to 19%.
If you don't have enough savings to pay off your credit card debt, pay more than the minimum each month. If you pay the minimum on a $2,000 or higher credit card balance, it will take you more than 30 years to pay it off because the minimum payment is barely enough to cover your interest expenses. Any additional amount you pay will go directly towards your principal.
If you can't pay off your credit card balances immediately, get a credit card with a lower interest rate. If your credit isn't good, keep trying for a better rate until you find one.
Pay credit card debt before your HECS debt
Your HECS debt has lower interest rates than credit card debt, so don't worry about paying off your student loans early. By having low payments on this low-rate debt, you'll have more money to apply to your high interest rate credit card debt and you'll come out ahead in the long run.
Know When To Get Help
If you can't make substantial progress on paying down your credit card debt, seek help. Your creditors may be willing to work out a payment plan or reduce your interest rate. If you can't negotiate an agreement yourself, seek credit counseling.
2. Increase you payments into superannuation if you can
Don't waste the magical compounding years of your 20s and 30s. Even small amounts of money you invest in your 20s and 30s has plenty of time to grow into significant amounts if invested early, regularly, and not too conservatively.
Even if you faithfully contribute to your superannuation, you can sabotage your wealth-building efforts if you invest too heavily in conservative funds. When you start in your 20s and 30s, you can afford to assume some risk. Allocate your investments between several types of funds and sectors of the economy.
Please seek our advice on the types of investments that suit your risk profile.
3. Build An Emergency Fund
Once you've paid off your credit card debt, concentrate your efforts on building an emergency fund to cover three to six months worth of living expenses: rent, utilities, car payments, food, transportation, insurance, etc.
When you are in your 20’s and 30’s you feel you are bomb proof and there is always next year to begin planning for the future.
The tips above are not a magic formula but based on experience.
Please contact us on 07 3222 9777 or Bentleys@bris.bentleys.com.au if you would like to discuss further.