In the winning essay of the 16-17 age group in our Young Financial Journalist competition, Moradeke Akisanya looks at how young people can be financially savvy in a cost-of-living crisis.
During the COVID-19 pandemic, a large number of young people lived with their parents, postponing their ‘freedom-day’ and prolonging their ‘financial virginity’.
Now, in the midst of the cost-of-living crisis, young people must foot their ever-increasing bills, hoping to escape their formative years unscathed.
Luckily, technological advances mean that you don’t need a finance degree to weather the storm. Employing these simple financial tactics would make even a Goldman Sachs worker smile in awe.
How should you manage your money?
The most commonly used phrase amongst economists is ‘it depends’. And alas, despite being less than a year into my A-level economics class, I am no different.
Money-management is a personal affair that should be handled on a case-by-case basis. Had there been a ‘golden-nugget’, 7.8 million people in the UK would not be struggling to pay their bills.
Despite this, there is light at the end of the tunnel.
1. Track your expenses
Fresh out of ‘financial virginity’, young people know very little about what goes in and out of their account. The first step in reducing your costs is understanding your day-to-day expenses.
Although the cost of living is rising for everyone, people’s circumstances vary, so it’s important to understand your own situation.
There are hundreds of apps that can aid you in this regard. Personal finance apps like Mint allow users to connect their bank accounts, allowing their transactions to be categorised.
With Mintsights, users can monitor their direct debits and standing orders, meaning you can cancel your unused subscriptions. This will reduce your monthly costs, which could even be put towards your savings. As Tesco says, ‘every little helps’.
When my older brother was 18, he signed up for a one-month Amazon Prime trial. A year later, £107.88 poorer, he realised he never canceled the subscription. Had he been tracking his expenses, he may have been able to afford an extra Saturday-night supper.
2. Create a budget
Now that you’re well-acquainted with your spending habits, it’s time to create a budget.
There are many budgeting apps and tools online.
Money Helper’s Budget Planner offers a place to manage your finances and personalised tips.
Another useful app is Goodbudget. The app allows people to sync their budgets with ‘a spouse, family member or friend’, with insightful reports about your spending habits, debt progress and more.
3. ‘Pay yourself first’
Fresh out of ‘financial virginity’, young people are often quick to splurge on clothes, food and more after receiving their first paycheck.
Don’t do this.
Pay yourself first.
You can use your budget to determine how much you will be able to save each month. The 50/30/20 rule is a baseline rule, where 50% of your income is set aside for your needs, 30% for your wants, and 20% for your savings.
Alternatively, as one of the joys of youth is low costs, saving one third of your salary may be beneficial. This will allow you to take advantage of compound interest, ensuring you are prepared for future financial difficulties.
How can I cope with increases in the cost of living?
1. Use loyalty cards
At this point, with the help of a few apps and budgeting tools, you should have a sound knowledge of your spending habits; this will highlight your go-to shops.
The consumer group Which? estimates that shoppers can save between 50p and £10 for each £100 pound spent when registered for a loyalty scheme.
Most UK supermarkets have a loyalty scheme.
With the ‘Tesco Clubcard’, shoppers can save up to £351 a year with ‘Clubcard prices’. In a bid to help consumers amid the cost-of-living crisis, Sainsbury’s launched the ‘Nectar Prices’ scheme which offers similar discounts.
My personal favourite is the Boots card. Collecting 4 points for every £1 spent, I have accumulated so many points that I often walk into a Boots store and tap my advantage card to pay, with my bank account breathing a sigh of relief.
2. Shop in discounters
Despite the savings offered by loyalty schemes, some supermarkets still offer much lower prices. Doing your grocery-shopping in discounters like Aldi and Lidl can be money-saving gold.
Buying own-label products can also cut costs.
So, although the prospects seem bleak, good money-management can be the key to navigating through the cost-of-living crisis.
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