Your education may not always bring you the best job. Your job may not last forever, and your investments could become history in a matter of days. Life is unpredictable, but you could always use certain resources to make things work for you.
The basics of any financial portfolio include the understanding of its three pillars- loans, savings, and investments. If you lack in savings and investments, you will end up with a low retirement income. If you handle your loans poorly, your entire financial record will be ruined forever. Here is how to maintain a balance between the three in different life stages.
Young adult/college freshman
This is the time when you are least concerned about money- whether earning or spending. You may want to focus more on ideas, pizzas and that cool place you have to go and visit with your friends. As you are not earning yet, investments are beyond your reach.
However, loans and savings still are. As a college student, try to save as much of your allowance as you can. At this time, the only possible loan you could have is a student loan. Make sure you are making efforts to find a job quickly after graduation, so you don’t have to wait for longer to pay the debt off.
As soon as you have finished college and started working, your focus may shift to splurges, partying and traveling. While there is nothing wrong with spending some money on yourself and enjoying your life, you definitely need to balance the three pillars of your financial life. Most people go wrong here and end up with a life full of debt and regrets.
The only loan you should have right now is a car loan. You may also need a small credit for emergencies or other needs. Make sure you get this money from a trusted credit service provider like Mr. Lender. Don’t opt for credit from shady companies. You should be able to save at least 20% of your income now. If you earn 1000 GBP, at least 200 GBP should be your savings. Of these, only 50 GBP should be your cash savings while the rest must be invested. With the remaining 800 GBP, find a great apartment to live in, pay your auto loan and splurge.
The nearer your 30s, the more you should think about getting a home. Though this is not true for everyone. If you want to start a family, already have one or just want to own a large asset, go for mortgage loans and buy a house. The loans usually have very low rates of interest and will carry on for the next 20 to 30 years. It will be better to avoid taking any further loans at this time. You must also try to increase your income. This, in turn, will increase your savings as well as investments.
The older you get, the more of your income should go to savings and investments rather than loan payoffs. Whether it is buying a home, a car or investing, the earlier you start, the more advantages you receive. Make sure that you plan your finances properly before taking any drastic steps.