Its no secret that the way in which millennials handle their financial investments is going to have to be far more astute than those of prior generations. Brexit, univeristy debt, and rising housing prices are all having a huge impact on university graduates. But is there anything they can do about it?
Debt acquired as a student is directly linked to mental health problems and has been proven to discourage entrepreneurship, restrict career choices, decrease job satisfaction and lower levels of net worth. The seemingly obvious conclusion that can be drawn from that statement is its essential to reduce and remove student debt as quickly as possible.
The following article has been broken down into well researched practical steps graduates can take to help make their debt more manageable and clear it faster.
Create a plan and stick to it
New statisitics produced by finance firm Wellesley reveal that one in twelve 18-24 year-olds never check their bank account. The fear of dealing with debt and the stress associated with it means graduates are dealing with their financial pressures in a way completely counter to experts advice.
Henri Steenkamp, CFO of Saratoga Invertment Corp, writes that one of the best things to do when confronting student debt is to ‘create an aggressive but realistic three- to-five-year plan.’
By regularly checking your bank account and knowing your expenditure, you can help to prevent hideen fees from overdrafts and loans. Setting up a strategy that correctly manages income will result in debt being paid off faster due to consistently declining interest fees.
This is typically a good way to handle loans and debts that aren’t direct government officiated loans. Direct student loans you receive to pay for your degree are paid back at a fixed rate based on your earnings. It’s not reccommended to try and pay off these loans as they have a different set of rules and won’t effect things like your credit score.
Sticking to the saving rule of 10%
Save 10% of your earnings. Just like we looked at how paying off debt as quickly as possible can be advantagesous due to interest rates, here we look at the benefits of Saving 10% of your monthly income. 10% is a figure recommended by many financial experts as it is not a huge amount of money you will sorely miss every month but it is significant enough that it can grow.
Albert Einstein once said something that has become a famous quote in the financial industry. He said “Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.”
Compound interest is the idea of making interest on the interest that will be earned in the future. An easy way to work it out is using ‘the rule of 72’. You simply take the number 72 and divide it by the interest rate and this will tell you the number of years it will take you to double your money.
For example, a realistic interest rate for a savings account in the UK is around 3%. 72 divided by 3 is 24. That means if you have £10,000 in your savings, if left untouched, it will take 24 years to turn into £20,000. That might seem like a long time for not much money but that’s the beauty of compound interest. If you were to pay additional money in monthly that figure would look a lot healthier and significantly larger.
Even if you start from scratch today and save just £100 a month for the next 30 years at a low interest rate of 2% that can quickly amount to £49, 355. On top of that, if you do some research, there are certainly stronger banking options out there, in fact, The Guardian reports that some regular savings accounts can offer up to 6.5% annual interest.
Look for other investments
Invest but don’t put all your eggs in one basket. There are a number of different places you can invest your money. Do some research and see which ones work best for you. There are loads of options, from low-high risk stock investments to simply buying and storing items proven to both hold/increase in value. Train yourself to be able to separate assets from liabilities.
If you’re still unsure, property investment is definitley a good place to start. Real estate typically holds its value and with an ever growing UK population, homes are always going to be indemand. Property has become so sought over in recent years that many individuals are replacing pensions with their property portfolios.
While the concept of a mortgage probably seems unrealistic for many graduates, this is a goal you should put at the top of your list. You can always split the costs and equity profit with someone you trust.
Make short term sacrifices for long terms gains
This is certainly easier said then done but it is well worth making the effort. The previous sections have clearly identified that a small amount of money, when managed properly, can go a long way. Whether you decide to save, invest or both, the quicker you get your finances together the quicker you can grow your money and use it to reduce your debt-related stress.
Take a look at your outgoings and see what luxuries you’ve been buying that you could afford to stop. Phone bills, take aways and expensive holidays are some common areas young adults are found guilty of spending extravegently more than needed.
Most of us probably want to go back to our university lifestlye once we graduate and that means moving out. However, if you can avoid it and have the option of staying with parents or relatives for reduced rent do it. That extra money you save over a one or two year period can make a huge difference.
Josiah Harris is a journalist who is on the journey to find financial freedom. He enjoys sharing what he learns and hopes to educate as many people as he can before he becomes a millionaire.