Here is the second instalment of the Young Money Guides, tackling the issue of debt and showing 20 somethings how to build up funds for a rainy day. Enjoy…
Okay, so there are ways. You could make it by getting a job with a huge salary or setting up an exceptionally lucrative business. You could inherit the money if
one of your relatives dies, or if a member of your family gifts you money while they’re still alive. But after this, your options are few and far between. Gambling or trying your chances on the National Lottery could make you instantly loaded but you know as well as me – you’ve got much more chance of being left with a gaping hole in your pocket. How many times have you been told you’ve got more chance of being struck by lightening than winning the lottery? (It’s true.) And what about the stock market? Well, it’s a great way to make money, but only if you’ve got a decent chunk of money you can afford to lose, as well as a long time horizon ahead of you (you have to be prepared to get rich slowly).
Experts say you shouldn’t really invest in stocks and shares unless you’re willing to invest for five years or more. You can read all about how to get started investing in ‘How to get rich by the time you’re 50’, the next guide in the series.
Most of us have to accept we aren’t going to get rich quick. But that’s no reason to whip out the violins and the Kleenex. Why? Because most of us are perfectly capable of quickly building up a nice pot of money – that won’t make us rich – but will give us financial security. This will be our financial foundation and will give us better financial safety both now and in the future. If you want to build up your first pot of money, the best way to do it is to set up a savings account and deposit money into it on a regular basis – and we’ll come on to that in a bit.
But first, there’s an elephant in the room we haven’t talked about yet: debt. So let’s get that out of the way before we move on to talk about saving.
Debt, debt, debt….
Around two-thirds of twentysomethings in Britain are more than £10,000 in debt. It’s a weight on our shoulders most of our parent’s generation didn’t have to carry – mainly because university tuition fees were free in ‘their day’, but also because the cost of housing and day-to-day living is higher and pay-day lenders are more prevalent as we struggle to afford things. It’s an uncomfortable
reality we have to live with and a timely issue for our generation.
If you have debt, before you even think about building up savings, you need
to work out if you’d be better off paying back the debt as quickly as possible.
If you have any form of debt (apart from a student loan, but we’ll get to that in a minute) you should make paying it off as fast as you can your top priority. This is because the interest rates on loans are normally so high they speed up compound interest, only this time, it’s the money you owe that grows
rapidly. Here’s a scary thought. If you borrowed £100 at Wonga’s (a popular pay-day lender) rate of interest (4,212 per cent!) you would owe more than the US national debt (over $14 trillion) after seven years. As it happens, Wonga only lets customers borrow money for a year or less, so the most you can possibly owe them is 42 times what you borrowed – but still – you get the idea!
If you’re in debt and struggling with the repayments, the Citizens Advice Bureau has some helpful information about how to get it paid off in the least stressful way possible.
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