For many young people the idea of saving money is foreign. What should we be saving for? Why does it matter? Well, the financial decisions we make today can have an enormous impact on our futures, including when we buy our first car, take out a school loan, or make a down payment on a house. I recently sat down with Sherry Finney, a mortgage specialist and financial professional with thirty years in her field. With her expert advice, I came up with six steps young people can take to encourage savings and make smart decisions about money.
Begin by starting a dialogue with your parents. How much do they save each month? What mistakes have they made? Money, because of its emotional connotations, is a taboo subject for many families-yet it doesn't have to be. Parents should feel an obligation to be their child's first teachers about money. Next, read about finance. Ms. Finney's suggestion is George S. Clason's The Richest Man in Babylon. This book lays the foundations of finance and outlines principles every person should live by. My personal suggestion is The Complete Idiot's Guide to Finance in Your 20's and 30's, which gives straightforward advice and puts your financial future into perspective. Don't stop there. It's important to continue your education on finance - read daily newspapers like The Wall Street Journal and watch the nightly news. Lastly, check your FICO credit score. This three-digit number is the biggest determiner of your financial future. It is available from www.annualcreditreport.com, and is free once per year. The more informed you are, the more comfortable and confident you will be in making key financial decisions.
Overdrawing an account, charging an item on a credit card, paying a bill late and impulse shopping are a step backwards in saving. They all affect your credit score and ultimately can undermine your financial future. The important lesson is to not make the same mistakes twice. Make a commitment to yourself. You can't change yesterday, but you can make a change tomorrow.
Just like studying, playing an instrument or sport, having a financial plan, complete with short and long term objectives, should be part of your daily life. Check your bank or brokerage accounts daily (they should be available online). Automatically put a portion of your paycheck away as soon as you receive it. The more you save, the more routine it will become and, ultimately, habit forming.
Money is spent in restaurants, clothing stores, on our cell phones and so on. Unfortunately, many forget to pay themselves first. Remember this is your money and you have worked hard for it! Ms. Finney says a good place to start is by automatically saving 10% of your paycheck. As you become comfortable with this percentage and are able to pay your necessary bills, increase that percentage. Make a long-term percentage goal and stick to it. You owe it to yourself.
The media and our recent celebrity-obsessed world blur the line between the tangible and intangible. Think about what you can realistically afford, and then live below that. Daily Starbucks runs and weekly magazines add up quickly. Ask yourself if they're really necessary. Live below your means and before long you will see your bank account grow!
Strict adherence to a financial plan will only help you save. But if you're not having fun and rewarding yourself for your hard work, what's the point? Indulge yourself once you've reached landmark goals. Don't spend excessively, but think long and hard what will make you happy-maybe a new cell phone, maybe a pair of shoes-and go for it.