You have begun your career, now your focus is on earning money, but this brings new responsibilities and worries that you did not realise at your teenage. From moving into a flat or paying off your student debt, there are a lot of things that you need to deal with. However, people often slip up, making the right financial decision.
When it comes to financial management, you think that it is all about budgeting and saving money. Although you need to set aside money throughout your life, there are a lot of others aspects to think about like paying off debt, buying your first home, buying insurance, building retirement funds, investing money etc. You cannot focus on all of them simultaneously and therefore, and you will have to shift your focus from one aspect to another in your different age.
For instance, when you are in your 20s, you will learn how to budget, and when you are in your 30s, you will plan to buy you a home. Below is the classification of financial moves and the age, so you know which one you should aim at which age.
Financial decisions to make during your 20s
The first step to get your finances on the right track throughout your life is budgeting. Although it is time consuming and monotonous, you should not give up until you catch on. Budgeting will help you track your spending and ensure you are not overspending.
This will let you get an insight into a real picture of your financial condition. You do not need to create a manual budget as you can use apps. Set your budgeting goal, and the app will notify you if you are off track.
- Build an emergency cushion
As in your 20s, you do not have any significant expenses, nor do you have to set aside for substantial expenses like your wedding. You should transfer money to an emergency cushion as much as you can. A rule of thumb says that you should transfer at least 10% of your savings to cash cushion.
However, if you earn a fair amount of money, you should not bother to contribute at least 20% of your salary every month. Note that if you want to contribute money to cash cushion consistently, you will have to budget every month. If you do not know how much and where your money is going, you cannot balance between spending and saving.
- Build credit history
Since you have to buy your home in your 30s, you must build a good credit history in your 20s. It will help you borrow money at lower interest rates.
- Pay all your utility bills on time.
- Start paying off all your debts on time.
- If you purchase with a credit card, you should pay off the bill within the interest-free period.
If you have already lost your credit score that you are under a “very poor” category, you should take out very bad credit loans with no guarantor. You should take out these loans directly with a lender because they charge no broker fees.
Financial decisions to make during your 30s
- Create a retirement fund
Now that you have learnt to budget and built emergency cushion, the next step is to get an insight into a more significant financial picture, start saving for your retirement. Since you are contributing a considerable amount to such funds, it does not mean that you will stop stashing away for an emergency corpus. Remember that both types of accounts have different. The former aims at helping you tide over during golden years of your life and the latter aims at helping you when unforeseen expenditure pops up.
- Buy your home
Start rigorously setting aside money for a deposit of your first home. As you know you should have at least 5% of the total cost of the home, you should start doing it right now. Have an idea of the cost of your first house you can afford and start saving money. It is better if you have 20% of the deposit size for a mortgage. Make sure that you have saved this much money until you are 35. Start looking for a home and apply for a mortgage. This entire process may take at least six months. Therefore, the sooner you start, the better.
- Start investing
Investing is crucial to building wealth, and this is the only way to do so. Even if you are a noob, you should worry about investing money. Start with small shares and bonds, and once you get your foot wet, you can start investing in mutual funds.
Financial decisions to make during your 40s
- Contribute to your retirement funds vigorously
You are near your retirement age, so start saving rigorously. If you make money with dividend and interest, make sure that you transfer that money to your retirement funds. This time you should cut back on your spending. Try to live off meagre money, so your retirement fund quickly builds up.
- Grow your wealth
Now is the right time to build your wealth. You have had enough money in your savings, your kids are grown up, and you have more time to think about what you can do with your finances.
Do not let money idle in your retirement funds because the pound today is worth more than the pound tomorrow.
Try to invest your money in property. You can invest in residential or commercial property and can rent it. This will allow more cash to come to your home.
Whether you are young or old, financial planning is essential. Now you must have got to know how financial decisions vary as you grow. It is not necessary you have to follow this pattern strictly. Take stock of your financial situation and decide what suits you.