Papa's Promotions forum

Seven money tips for under-20s

By Nick Louth original content source money.uk.msn.com
October 18 2007


If you’re young, the chances are that you are feeling broke or nearly so. The middle aged have all the cash, while you can’t afford to run a car and cannot begin to think about ever buying a house. While the cost of mobile phones, MP3 players and music CDs is either stable or falling, other things are getting more pricey.

Rents, transport and food are going up. Students, whose finances actually improved a little this year for the first time in seven years, are going to be hit next year by top-up fees. According to NatWest the average 2007 graduate was weighed down by £12,263 of debt, a fall of £886.

But from 2008 the top-up fee system could add up to £3,000 a year. That’s an awful lot of minimum wage hours working behind a bar or in a restaurant.

So if you are a bit depressed about your finances, here are a few tips which you might find useful.



1) Map your money
Figuring out how much you spend and on what is an essential start to getting any sort of handle on your finances. Funnily enough, the big stuff is the easiest. You will know what your rent is, what insuring the scooter cost and what your college fees are. What you may not have grasped is how the minor but regular payments add up:

* Ten 12p texts a day: £438 a year
* A £1 bus ride, twice a day: £700 a year
* A Starbucks every day: £700 a year
* A takeaway meal twice a week: £2,000 a year
* Five pints of Carling every Friday and Saturday: £1,400 a year



2) Identify a saving
Not everything that you spend money on needs to cost you that much. No, I’m not referring to sponging rounds off your mates.

You could learn to make homebrew though, if you’ve got the space. It costs about £50 to get the kit, including bottles (you can find it all online), and the ingredients for 40 pints will cost around £8.50. At 20p a pint that makes those nights in front of the footie a lot cheaper.

You can get free texts if you don’t mind getting some advertising, while if you can either walk or cycle you can save plenty on the bus. For longer journeys where time is not essential, hitch-hiking is still a fun and sociable option. Women should only do so in pairs. For regular journeys try advertising for a lift in exchange for sharing petrol. Again, there are sites online to help you.



3) Get your head around interest rates
Interest rates can work for you or against you. If you’ve got some savings, compound interest is your friend. If you haven’t any, it’s your enemy.

The first thing about interest is that even small amounts really add up over time. The cost of two packets of cigarettes a week invested from age 16 is enough to build a £250,000 pension pot by retirement age. The key here isn’t so much putting in a lot of cash (who has lots at your age?) but starting as early as you possibly can.

You might be tempted to say "I’ll wait until I earn twice as much as I do now", but in fact by the time you do getting to the same pension pot will cost probably three or four times as much. I can’t emphasise this enough. It is the way this gradual build-up works on your behalf, even when you are asleep, that is the greatest lesson of compound interest.



4) Make the plastic work for you
Credit cards are great, but they give you plenty of rope to tie yourself up in. The best self discipline is this: only buy with a card something that you could pretty much cover with the cash you have. If the money’s not there at the end of five weeks, or whenever the card bill comes through, you will end up paying more than the cash price.

Of course cards can trip you up even when you have the money. If you don’t pay the minimum balance on time you are going to get stung for a fee of £20-£25. If you can, get this set up as a direct debit.



5) Working the breaks
Anything you can do to build experience and world-wide friendships is not only going to be fun, but worth money to you later in life. Stuff like cycling across China to raise money for charity, a gap year building apartments in Andalusia, or working in a Milan bar while learning Italian will give you confidence and look good on a CV.

If you don’t do it when you’re young you might miss out later on in life. At 20 it’s fun to kip in a sleeping bag on someone else’s floor or party until 3am in a town whose name you can’t recall and then get up to go to work. At 30 it’s less so and at 50 it might be regarded as a nightmare.

With all the e-mail addresses you will accumulate, you will have a friendship network that will throw you dozens of work, travel and even romantic opportunities and give you the confidence to take them. Your parents never had the opportunities for enduring contact that the internet brings. You should use them.



6) Learn to cook
Cooking really is an asset in so many ways. First, your parents will probably be delighted to teach you, and it won’t cost a penny. Second, there are thousands of ways of preparing cheap and nutritious meals that will save you a wad on takeaways and junk food.

Last and not least, being able to cook is really appreciated by the opposite sex. A quiet night in when you’re doing the cooking doesn’t just save pounds, but you don’t have to entice the woman or man of your dreams back to your place because they’ll already be there!



7) Avoid crazy mistakes
Putting your best financial foot forward isn’t just about doing the right thing, but not doing the wrong thing. There’s an endless list of these, from the obvious (like not getting hooked on drugs, booze or gambling), right through to more subtle stuff.

One of these perils is the a car loan. Unless you absolutely have to have a car to get to work, buying one with a car loan is going to cost you dear. The reason is pretty simple. A vehicle is a rapidly depreciating asset, which probably halves in value in around three years (from new). On top of that, the finance house is going to charge you more for that loan precisely because that depreciation means it is less sure of getting its money back if you default.

Whether it is interest costs, tax, insurance or repairs, the later you can defer car purchase, the better shape your finances will be in.



Unplanned parenthood
The last mistake is one of the biggest of all, and affects tens of thousands of under 20s each year. Don’t become an unintentional parent. Getting pregnant or getting someone else pregnant when it isn’t the right time or the right person can crimp your aspirations, prospects and finances for two decades.

It costs a minimum of £43,000 to bring a child up to the age of 18, according to fund managers Invesco. That’s before college fees kick in. Don’t count on getting thanks at the end of it either.

So keeping your head, and a condom in your pocket or purse, is a great investment. Then you can get on with having all the fun that being young should be about.