I’ve just realised it’s been over 10 years since I was 18 years old. Crazy!! With my focus on finances and becoming financially independent, I’ve been looking back and wishing I’d done things differently back then, so I wanted to share some of that advice with you so you don’t make the same mistakes as I did!

I’m really excited to have partnered up with BMO for this campaign. They are an amazing company with over 200 years of experience, offering some great finance products and they have kindly sponsored me to create a post sharing my advice with you. Please note, it’s important to understand that whilst the post itself is sponsored the views are completely my own. To view more about BMO and their products, visit – bmoinvestments.co.uk  

My hope here is that if you’re a teenager, this will help you make some better financial decisions for your future – if you’re an adult and a parent, show this to your children to help them make good choices for their future.

Don’t spend more than you earn.

Debt is a very slippery slope, and you will forever be chasing repayments and never have financial freedom if you remain in debt. You have to remember, interest on debt is essentially money thrown in the bin. I personally got my first job when I was 16, and my first full time job when I was 20. I got into debt straight away, and it’s taken me over 8 years to pay it all off. Within that time, not only have I paid thousands of pounds in interest to the banks, I’ve also missed out on thousands of pounds in potential growth from savings and investments.

The best thing to do, is just save up your money for the things you may wish to buy – otherwise everything costs you a LOT more than you think.

Photo by NORTHFOLK on Unsplash

Budget your money.

You may not think it matters – I definitely didn’t when I was younger – but knowing what money you have coming in and out each month will save you from overdrafts, and help you make sure you have enough money to put towards savings and investments on a regular basis.

All you need to do, is work out how much money you have coming in, what you need to use to live (i.e. pay your bills, eat) and from there you decide what you can put aside for short term or long term savings. Ideally if you really want to keep on top of your finances, setting up a regular contribution into your savings is a good idea – so that you don’t even miss having it in your bank account as you don’t see it there!

This brings me to my third point.

Put money aside for your future.

It’s really important to get into the habit of putting money aside for your future, as soon as possible.

The longer you save for, the more you can take advantage of something called compound interest. In very simple terms, compound interest works as follows:

You start off with £1,000. You potentially earn £10 interest on this.

In the next period, you will be earning interest on £1,010 so you might make £11 in interest.

Then, your starting point in the next period is £1,021 and so on…..

Now, once you’ve decided how much money you are able to save, you should have a think about whether you want to save it or invest it.

The current interest rates on cash savings are very low – it’s really difficult to get a savings account that pays you interest higher than inflation, which means your money can potentially lose value by staying in a low interest account. If you can take the risk that shares will go down as well as up, then investing might be a better option for some/all of your savings. That brings me onto my next piece of advice.

Invest Your Money

The value you will get by saving and investing from a young age is indescribable. I used to think – much like you probably do now – that worrying about things like buying a house, having children or retiring didn’t matter when I was a teenager, but OH MY GOD do I wish I had at least set aside 10-20% of my earnings regularly from a young age. I would have been able to buy my flat with a smaller mortgage. I would be able to achieve financial freedom much quicker – and not have to rely on a 9-5 job to pay my bills.

Having an emergency savings account is KEY, but anything above that isn’t worth keeping in savings accounts at the moment considering the awful interest rates.

Photo by Austin Distel on Unsplash

With today’s low interest rates, it can be difficult to find a savings account that can give you a return above the current inflation rate – i.e. if your money sits in your bank account, it will lose value over time. So it’s worth considering investments which have the potential to outperform inflation if we look at historical returns. Just remember… Past performance is not an indicator of future performance.

Let’s look at this really simple example of how compounding returns work in your favour as a teenager. In reality it’s a little more complex, but it will help you understand the basic concept.

Historically, the S&P500 index (i.e. the index of the top 500 companies in the US) has returned 8-10% per year.

Source: Investopedia.com

For illustrative purposes let’s assume a modest 7% return per year, in order to be prudent.

For example, if you invested £200 a month for 10 years from 16-26, assuming a standard stock market 7% return, you’re looking at around £11k of compound returns – of course, that’s assuming you re-invest any dividends.

Now, if you invested £400 a month for 5 years (same total £25k invested), from the ages of 21 to 26, you’re looking at only £5k in compound returns- essentially losing out on £6k of extra compound growth!

Now, investing when you’re a young adult can be daunting, so let’s quickly break down your options.

Firstly, under 18’s

If you are currently under 18, you may already hold something called a Child Trust Fund or a Junior ISA.

Child Trust Funds were started off with a voucher that the UK government gave children born in the UK between 1 September 2002 and 2 January 2011. Some of these are simply savings accounts, and some are investment accounts.  They were replaced by the Junior ISA’s from 2011 which had the same tax protections but didn’t get the government voucher to start them off.

If you don’t know what an ISA is, it’s basically a tax wrapper for your money – so you won’t pay any tax on the interest your money makes (if it’s in a savings account), or any increases in the value of your investments (i.e. Capital Gains).

Once you are 16 you are able to choose to become responsible for your own CTF or Junior ISA.  Although you can’t take anything out of it, you can start to make your own investment decisions including changing the provider or what you are invested into.

Do some research

  1. Speak to your parents and find out if there is already a CTF or JISA set up for you.  You can usually only have one of these accounts running at any one time (the only time you might have two is if you have both a cash and investment Junior ISA).
  2. If you have an account. find out where it is, what it’s invested into and what it’s worth.  Does anyone already make contributions into it?  Can you start to make contributions into it yourself?

If you don’t have one already, you can set up your own Junior ISA from 16. It’s not possible to set up new CTFs but you can move both CTFs and Junior ISAs to a new provider – perhaps if you want to move it from a cash account into investments to aim for better returns.  Of course, be aware that transferring to an investment based CTF or Junior ISA will place your capital at risk just like with any sort of investment.

Now, if you are 18 or over.

  1. If you already hold a CTF, and it’s about to mature, you should consider moving the investment you’ve already built up and building on it using regular savings (as mentioned in the previous point!). You’ll be SO tempted to spend it, but trust me you’ll thank me later if you don’t! You can find out more about the CTF Maturity process by visiting the BMO website.
  2. If you don’t already hold a CTF, I would still suggest opening a brand new investment ISA and regularly contributing to it. The beauty of an investment ISA with a place like BMO, is that you don’t have to think about what investment decisions to make. Investing into individual companies and making the decisions yourself is risky, whereas the BMO accounts have fund managers who make the decisions on your behalf, in order to maximise your returns.

If you’re interested in finding out more, don’t forget to check out the BMO website links above for more information, or follow them on Facebook.

Hopefully you’ve found this article useful, and you’ve realised that making good financial choices when you’re a young adult will set you up for success in later life. Money might not be everything, but it plays a huge role in our freedom and freedom IS happiness.

Disclaimer: None of this should be taken as financial advice, and you should always do your own research when it comes to investing your money. Past performance is not a guide to future performance and you may not get back the original amount invested.

Cover photo by javier trueba on Unsplash

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