I am constantly asked by parents what words of wisdom they should pass on to their children in terms of financial life goals. Many children only assume responsibility of their own finances after their third level education, usually starting with the first job. It is at this time they can start to set solid financial goals.
To keep it simple, John Lowe of MoneyDoctors.ie gives his top five goals for those in the next generation:
1. Create a budget. This is not a scary exercise but should be a liberating pleasure knowing you can control your financial future. Budgeting isn’t a one-time wonder but should be done every year – important to know how much it costs to run your life on a monthly basis so you can plan. Regular reviews ensure you keep your finances in check and keep on track with your goals.
Before starting your budget, examine all your financial documents and commitments. You can even track your current spending habits on a daily basis with the free Money Doctors app (App Store & Play Store) or Money Lover. Once you know how much is going out it is easy to work out how much you have left over or not at the end of each month.
Exceeding expenditure means you have to cut costs, earn more or prioritise what’s important. You might just have to forego that car upgrade next year. Once completed, you can then set long-term financial goals and review at the end of each year. The main goal? To live within the budget guidelines you set for yourself.
2. Save up an emergency fund. If at all possible, you should have totally accessible cash account - a Rainy Day Fund (RDF) - for three very good reasons:
- Emergencies – your car engine seizes.
- Sudden loss of income – your bonus and overtime is cancelled.
- Investment opportunity – buying an Aladdin’s lamp for half nothing.
A fully funded emergency fund should be between three and six months of your net annual income. You should always have a certain minimum in your RDF (c. €5,000) before you repay any debt and never use savings to regularly supplement debt repayments (you will eventually run out). Also a regular (monthly) saver account should be set up that could provide for holidays, Christmas presents, birthdays etc. Best regular saver account currently is Bank of Ireland’ 2% and AIB Bank’s 2.5%.
3. Invest in yourself. Depending on your career and life goals, you could invest in yourself by going back to third level and get a new degree or finish one up, being entrepreneurial and starting your own business, or just getting a new job. Other ways to invest in yourself include building skills (public speaking courses, start a sport such as golf / tennis, playing an instrument), joining networking groups (especially online) and doing something of a charitable nature with no expectation of any reward.
4. Build credit. We have not followed the US system of credit scoring but it is important we understand how our credit history works. The only credit agency is www.centralcreditregister.ie – they record every financial transaction, so one missed payment and it’s there for five years. If you build a solid foundation of paying your rent on time every month, keeping current accounts in order, regularly saving, you will give prospective creditors ample evidence of your financial ability and integrity. Compare current account offerings here.
5. Be financially responsible. Paying your bills on time, living within your means and reducing debt should all be top priority when handling your finances. If you are in a hole now and trying to climb out of debt from financial irresponsibility, just try to do better each month. As they say, the first thing you have to do when in a hole is stop digging. Financial responsibility can affect every aspect of your life: if you are not taking care of your money, then chances are you may be suffering in other areas such as your relationships and/or career. The ultimate goal to go for is making your finances a priority and getting them in order. You’ll feel better too!
For more information click on John Lowe's profile above or on his website.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ.
