Young, single, and on a budget? Skip the mistakes that others make

You’re young, single and on a budget. It’s hard being a ‘yadult’ sometimes. But life’s a lot more fun if you’re not stressing about the power being cut off. Take some tips from others’ mistakes and skip the ‘shoulda known better’ stage of your financial future. Here’s how:

Have a spending plan. That’s a budget, but if you think of it as spending plan it doesn’t feel like a torture device. The idea is that you get a pen and paper or spreadsheet out, start with what you earn and divvy it up into important categories such as rent, food, transport, utilities, insurance and saving. Then split what’s left into nice-to-have categories. Track your actual spend each week and put your cards away as soon as a category is empty.

Spend within your means. Try to live in a ‘less is more’ way. Cherish a few nice things, but don’t feel the need to buy everything. Consider purchasing quality over quantity – but beware of using this as an excuse to buy something you don’t need.

Set financial goals. You don’t need to be thinking about what you’ll do when you’re 50. Instead set baby steps such as a date when you want to be debt free, for example, and work back from that.

Start saving now. We know you think you earn nothing. Ten per cent of nothing is nothing. So at least put that away. Put three per cent in KiwiSaver so that you have a ready-made home deposit when you want it. The other seven percent should go into an emergency fund first and then short and medium term savings. The reason for the emergency fund is so that you’re not paying 19.99% interest on top of grudge purchases such as fixing the car. 

Pay all your bills. Rent, power, phone, water, and other utilities are essentials in life. Why not pay it before they’re due to save the stress and keep your credit record squeaky clean. The opposite can make it difficult to borrow when you really need to, rent a property, or even get a job.

Remember the consequences of a student loan. How much of your student loan was spent on booze and/or partying? It’s very easy to draw down ‘living expenses’ that really are for non-essentials. Yes it’s fun to party. But set yourself limits so that you don’t have to waste years of your life paying it back. 

Know the difference between good debt and ‘dumb’ debt. Put simply, good debt is debt that gets you ahead financially. That’s a student loan providing your degree really will help you earn more, a business loan, a mortgage, and if you really do need a car to get to work the smallest car loan possible.  Bad debt is the debt owed on the partying element of your student days, and money spent on anything that goes down in value such as TVs, mag wheels, the latest iPhone, and so on. By all means buy these things. But pay for them from short term savings.

Rent less house. Can you share with others? Is there a cheaper option? Rent is dead money. The sooner you can save and buy a modest flat or apartment the better. Where there’s a will there is a way.    

Get insurance. Sure you’re heard that insurance is a rip-off and insurers never pay out. The reality is that most of them do make a profit out of you, but they pay the vast majority of claims. Having no contents and car insurance in particular is a no-no because you could easily lose everything you’ve ever saved for in one fell swoop. It just takes an earthquake, fire, or smashing into a Maserati to do it. Likewise income protection insurance is a good idea in case you fall ill with cancer.    

Think big on the career front. Just like your money, set yourself a career plan. Find a mentor who can help you work through what a future in your industry looks like and have a strategy for how you’re going to get to the next step .

Watch out for sexually transmitted debt. We’ve written another blog on this. But just a reminder: three years after you get together with someone else (or sooner if you have children) your debt becomes theirs and vice versa. Be very wary of who you hook up with before it’s too late.

As a final word: you can do it. Choose the positive path and start by making one change at a time.