Most young people don’t think too closely about their personal finances. Their primary concern is earning enough money to pay for the things they want in life, such as a nice car, a holiday with their mates, or some designer shoes. For the average 20-something, the future is a long way off and who cares about pensions and mortgages?

The Perils of Reckless Spending

Unfortunately, bad decisions now could haunt you for many years to come. For example, let’s say you covet a shiny new hot hatch and you make a reckless decision to take out a car loan to pay for it. The salesman assures you that your salary will cover the payments and the finance company concurs.

You take delivery of the car and all is well until you lose your job and don’t have any savings or income protection insurance to cover the bills. Those car finance payments are now a major millstone around your neck and you have a black mark on your credit rating after missing two payments.

As you can see, it’s very easy to fall into debt, but by making the right decisions and getting your finances in order from an early age, you can easily avoid such calamities.

Be a Smart Spender

When you are footloose and fancy-free, money is there to spend. This is all well and good, so long as you don’t spend more than you earn. Be a smart spender and stick to a budget and you won’t run into difficulties.

Work at building up a solid credit rating for the future. Take out your first credit card and use it wisely. Spending money on a credit card is fine, but make sure you can repay the balance in full each month. If you want to make the most of any purchases, look for a rewards credit card that gives you air miles or loyalty points to spend in your favourite stores.

Build a Nest Egg

Prepare a monthly budget so you know how much spare cash you have each month. Aim to funnel around 10% of your income into a savings account. Set up a standing order from your current account to automate the process. Try and save enough money to cover you for a minimum of three months’ worth of salary. Put this in an instant access savings account.

ISAs are a useful tax-free savings vehicle for savings you don’t need.

Save for the Future

The future may be a long way off, but it doesn’t hurt to be prepared. The sooner you start saving into a pension fund, the more you will accrue thanks to compound interest.

Check out the government’s Help to Buy ISA and channel money into this for a house deposit. The government will reward you with a 25% cash bonus if you use the money to buy a home.

Build good habits now and you are less likely to run into problems when you hit your 30s and 40s. Yes, saving isn’t sexy, but then neither is debt!