Young, foolish & already planning retirement

Forbes writer Denise Appleby had an excellent article this week on retirement saving advice for 18-24 year olds. It’s not an easy sell. According to this article, young people learn financial responsibility when they take their first step of independence and move out of home. In which case, I might need to chase down some kind of financial behavioural therapy, because when I left home, my life was one of barely juggling bills and scraping together rent.

It is hard to think about the future when it feels like you have a lot of pressing concerns in the now. However, there are some bad habits that can be avoided which will help you retire with money in your pocket and time to spend it.

Credit cards

Boo, hiss. Okay, so it’s a pet hate. And what do credit cards have to do with saving for retirement? Well (and Ms Appleby will back me up on this), credit cards and saving don’t exactly go hand in hand. One year’s madness can result in a couple of years paying off the card, and not putting the money into savings.

Appleby also talks about the positive effect a good credit rating can have on your long-term savings. A good credit rating apparently involves paying your bills on time (which saves you money anyway), never exceeding your credit card limit, and having a debt to income ratio of 16% or less. While some commentators seem to feel that credit ratings have become increasingly less important, a good credit rating will still make getting a loan or a mortgage easier.

Appleby suggests that you can negotiate on interest rates, and save a lot of money over the years, all of which can go straight into a retirement savings account.

Consider the olds

Ah, this one cuts to the quick. When you’ve graduated, you have a couple of choices. You can continue to rent, you can look to buy (I’m told, I’ve never met a recent graduate in this position) or you can move back in with the folks. I went with the latter option. There were a couple of reasons, but mostly I never wanted to be as financially insecure as I was throughout university.

Moving back in with my parents has allowed me to save for a career investment and start thinking about having a savings account that will allow me to buy a house. It worked for me, but should you be someone who values their independence too highly…

To rent or to buy, that is the question

No recent graduate, in Australia at least, could really afford to buy a house straight up. Unless I’m hanging with the wrong crowd entirely. But once you’ve got yourself a full-time wage, earning more than 30 cents an hour at the local café, you start to question what you are working towards? Should you be paying someone else a couple of hundred dollars a week, as opposed to putting that money towards a mortgage?

Volunteer

Super contributions are a pain, but I plan to be putting a lot of purple rinses through my hair in my old age, and I’m going to need to fund it somehow. Increase your own super contributions, and you’ll never see the money anyway. Think about setting up your own high-interest retirement saving fund. Being young and immortal is great, but I suspect a mane of purple hair might be pretty sweet as well.

What retirement advice do you have for young people?

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