Starting out on the right track with personal finance is extremely important in today’s economy. It means that young professionals can move away from living paycheck to paycheck, as well as get themselves better prepared to handle emergencies (like the ones we’ve all experienced in the last few years). To this end, members of younger generations –– 72% of Gen Zers and 55% of Millennials, according to the Financial Times –– say that they would like to be able to save £1,000 in the bank, given the opportunity. These days though, that’s easier said than done!
Beyond general economic uncertainty brought about by the pandemic (and now the shockwaves from Russia’s invasion of Ukraine), there are also specific sectors of the market in the Netherlands that make things difficult on young people. For instance, the NL Times reports that housing costs were 18.7% higher in the last quarter of 2021 than they were one year prior. And a recent piece at Observant indicated that inflation could lead to rising costs for education as well.
Given issues like these, it is only fair for young professionals to wonder how they can manage to save money, and what they ought to prioritize when it comes to their finances. To help address these questions, we’ve provided a few words on sensible financial priorities for those in this demographic.
Pay Off Debt
Paying off debt is front of mind for young professionals all over the world. Even before the pandemic, in fact, a Vice survey of millennials revealed debt to be among the chief concerns. Some claimed they had no option but to get into debt to pursue education; one described “losing drive” because of an inability to escape responsibilities like debt. The bottom line is, it’s a widespread and extraordinarily burdensome problem.
For this reason, it should also be a priority. How you pay off debts will depend to some extent on your specific situation, but it’s important to have a plan front and center within your personal financial strategy. For many, it’s the snowball method that works. This means paying the minimums as needed for all your debts, and putting any leftover capital toward the smallest one first. This knocks out that debt so that interest stops accruing, and you begin to have more money to put toward your remaining debts –– and so on.
Start Investing for Retirement
We noted in our previous piece, “5 Retirement Planning Mistake to Avoid” that some 48% of people haven’t yet calculated how much money they need to save for retirement. This is something that everyone within that percentage ought to address. But young people in particular would do well to start preparing now, and work out how much they’ll need in order to live comfortably and cover necessities by the time they retire.
Yes, it’s probably a long way off, and you can’t plan decades of saving to perfection. But it’s better to start preparing now –– and saving. Bear in mind that many retirement plans involve compounding interest, meaning the earlier you start putting money away, the more time you give it to grow. Additionally, some European plans dictate the age of eligibility for retirement according to how long one has paid into a plan. So again, the earlier you start, the better.
Get Into the Habit of Budgeting
Creating a budget can sound overwhelming, but in reality, getting started is as easy as grabbing a notebook and a pen and jotting down every expense and form of income you have. From there, you can organize it all into more detail in order to set up a sound and informative budgeting system.
A guide to budget components at AskMoney does a helpful job of breaking things down into “main” components –– pure income and expenses –– and more detailed considerations that young people need to take a look at. These might include freelance and side project earnings (for income) and breakdowns of essential versus discretionary spending (for expenses). Once you establish these categories, you’ll begin to gain a clear picture of what money you have at your disposal, where you might save more, and how and where you can afford to spend on a monthly basis.
Work on Emergency Savings
We’ll knock on wood here of course, but having an emergency savings fund is essential for everyone. The specific amount you aim to set aside will depend on your needs, responsibilities, and means, but broadly speaking, a write-up at Time Magazine recommends somewhere in the neighborhood of three to six months’ worth of expenses.
This is where budgeting can come into play. If you establish a reliable estimate of your monthly expenses, you can multiply that by six. Target that amount for your emergency savings, and you should ultimately establish a big enough cushion enough to deal with most of what life may throw at you.
Find Ways to Save Money
Having that budget is a great start, but sticking to it and saving money is even more important. Doing so allows you to pay your bills and other necessities, and save money for the future (or for specific needs you’ve identified). Having a budget also allows you to visualize how much you can spend on things like a fun night out, or that monthly subscription to a video streaming service, without going over your budget.
Some examples of how to save money and therefore live within your means as a young professional include getting a roommate or two to save on rent and cutting out any unnecessary monthly or yearly subscriptions. You might also consider eating at home more often rather than going out to restaurants or getting carry-out. These all sound like fairly small and simple steps, but they add up. A few years ago, for instance, Forbes estimated that eating out on average costs five times more than cooking at home. Find a few savings opportunities like this, and you may just find that you have more money at your disposal quite quickly.
With so much economic pressure on young people today, it can be difficult to sort through priorities. Once you do, however, you can focus on actionable ways to improve your personal financial outlook. Pay down debts, stick to your budget, and prioritize savings, and you’ll be well on your way to making the absolute most of what you earn –– and setting up a more comfortable future.
Wealth Managers and the Future of Trust: Insights from CFA Institute’s 2022 Investor Trust Study
Author: Rhodri Preece, CFA, Senior Head of Research, CFA Institute
Corporate responsibility is more important than ever. Today, many investors expect more than just profit from their financial decisions; they want easy access to financial products and to be able to express personal values through their investments. Crucial to meeting these new investor expectations is trust in the financial services providers that enable investors to build wealth and realise personal goals. Trust is the bedrock of client relationships and investor confidence.
The 2022 CFA Institute Investor Trust Study – the fifth in a biennial series – found that trust levels in financial services among retail and institutional investors have reached an all-time high. Reflecting the views of 3,588 retail investors and 976 institutional investors across 15 markets globally, the report is a barometer of sentiment and an encouraging indicator of the trust gains in financial services.
Wealth managers may want to know how this trust can be cultivated, and how they can enhance it within their own organisations. I outline three key trends that will shape the future of client trust.
THE RISE OF ESG
ESG metrics have risen to prominence in recent years, as investors increasingly look at environmental, social and governance factors when assessing risks and opportunities. These metrics have an impact on investor confidence and their propensity to invest; we find that among retail investors, 31% expect ESG investing to result in higher risk-adjusted returns, while 44% are primarily motivated to invest in ESG strategies because they want to express personal values or invest in companies that have a positive impact on society or the environment.
The Trust Study shows us that ESG is stimulating confidence more broadly. Of those surveyed, 78% of institutional investors said the growth of ESG strategies had improved their trust in financial services. 100% of this group expressed an interest in ESG investing strategies, as did 77% of retail investors.
There are also different priorities within ESG strategies, and our study found a clear divide between which issues were top of mind for retail investors compared to institutional investors. Retail investors were more focused on investments that tackled climate change and clean energy use, while institutional investors placed a greater focus on data protection and privacy, and sustainable supply chain management.
What is clear is that the rise of ESG investing is building trust and creating opportunities for new products.
TECHNOLOGY MULTIPLIES TRUST
Technology has the power to democratise finance. In financial services, technological developments have lowered costs and increased access to markets, thereby levelling the playing field. Allowing easy monitoring of investments, digital platforms and apps are empowering more people than ever to engage in investing. For wealth managers, these digital advancements mean an opportunity for improved connection and communication with investors, a strategy that also enhances trust.
The study shows us that the benefits of technology are being felt, with 50% of retail investors and 87% of institutional investors expressing that increased use of technology increases trust in their financial advisers and asset managers, respectively. Technology is also leading to enhanced transparency, with the majority of retail and institutional investors believing that their adviser or investment firms are very transparent.
It’s worth acknowledging here that a taste for technology-based investing varies across age groups. More than 70% of millennials expressed a preference for technology tools to help navigate their investment strategy over a human advisor. Of the over-65s surveyed, however, just 30% expressed the same choice.
THE PULL OF PERSONALISATION
How does an investor’s personal connection to their investments manifest? There are two primary ways. The first is to have an adviser who understands you personally, the second is to have investments that achieve your personal objectives and resonate with what you value.
Among retail investors surveyed for the study, 78% expressed a desire for personalised products or services to help them meet their investing needs. Of these, 68% said they’d pay higher fees for this service.
So, what does personalisation actually look like? The study identifies the top three products of interest among retail investors. They are: direct indexing (investment indexes that are tailored to specific needs); impact funds (those that allow investors to pursue strategies designed to achieve specific real-world outcomes); and personalised research (customised for each investor).
When it comes to this last product, it’s worth noting that choosing advisors with shared values is also becoming more significant. Three-quarters of respondents to the survey said having an adviser that shares one’s values is at least somewhat important to them. Another way a personal connection with clients can be established is through a strong brand, and the proportion of retail investors favouring a brand they can trust over individuals they can count on continues to grow; it reached 55% in the 2022 survey, up from 51% in 2020 and 33% in 2016.
TRUST IN THE FUTURE
As the pressure on corporations to demonstrate their trustworthiness increases, investors will also look to financial services to bolster trust. Wealth managers that embrace ESG issues and preferences, enhanced technology tools, and personalisation, can demonstrate their value and build durable client relationships over market cycles.
How to Build Your Credit Up Safely
by Taylor McKnight, Author for Compare Credit
What Is Credit?
Credit is money owed by a person that allows them to pay off debts at a lower interest rate. Most banks use your credit score to determine how much they should lend you. Any business loan or mortgage requires that you have a good credit history. However, if someone has poor credit(www.comparecredit.com/credit-cards/credit-range/poor/), they may struggle to pay back these loans, resulting in higher interest payments, making it more difficult than ever to repay the debt. Lenders are aware of this issue and keep a close eye on your credit rating to ensure that no negative information gets reported. This could prevent you from getting another loan in the future. It is important to note that having a bad credit score does not mean you have had a bankruptcy or other kinds of defaults. Many people often face this problem because of unpaid bills or late payment fees. However, this does not mean that you cannot repair your credit – it simply means that all parties involved must work together to solve the problem.
How to build your credit safely
Building your credit score is a major concern for most people, especially if they plan to purchase something as big as a home or car. A good credit score will help one get better rates in the future and make it easier to finance their next venture. Here are some things you should know to improve your credit to be used for the best possible purposes.
1. Keep paying down your balances every month: One of the biggest mistakes that could hurt your credit score is not paying your balance down each month. People who don’t pay their credit card down within the agreed-upon time typically have high-interest rates and expensive monthly costs.
2. Pay your bills on time: The same goes for making payments on a bill. Not paying it within the specified timeframe will result in negative information being added to your report, further lowering your credit score. Ensure that your bank statements are accurate and that all accounts are up to date.
3. Become an authorized user: Some companies will allow customers to become authorized users after meeting certain requirements. Take a look at the terms and conditions before applying for this option. These programs usually give access to one particular service, such as checking or ATM transactions, but are helpful when you need additional coverage.
4. Set up automatic credit card payments: There are several ways to set up auto payment options on your credit cards, including sending them directly to your checking account via email or the phone. In addition, you may want to consider enrolling in online banking services that automatically make payments from your checking account into your credit card accounts.
Other tips when it comes to credit
1. Learn how to manage debt responsibly. This is true for both personal and business debts. Many people tend to spend more than they earn, especially during rapid growth and expansion. If you find yourself facing difficult circumstances, you can seek assistance by talking to friends and family members, getting professional advice, or using online budgeting tools.
2. Don’t skip any repayments. This rule applies specifically to late payments. You need to continue making regular payments, even if you’re behind by a few days or weeks. Once you miss a payment, you’ll start accumulating late payments that negatively impact your score.
3. Try consolidating your loans. Consolidation involves combining multiple small loans from various sources into one large loan, thereby lowering the total interest cost of the loan and reducing the risk associated with it.
4. Be wise with your credit report. One huge mistake most people make is neglecting to pay their bills on time or paying only the minimum due balance each month. As a result, bad information remains on their reports, impacting their scores. All outstanding balances must be paid off completely. Otherwise, negative items that remain on your report can keep you from achieving the best borrowing potential.
5. Get your questions answered. If you have any questions regarding your credit, ask for answers now rather than waiting until you’re experiencing trouble. With a little research, you should be able to learn enough to begin repairing your damaged credit report.
What to look out for that can harm your credit
1. Not checking your credit report: Most people use their credit cards frequently but fail to check their credit reports periodically. Checking at least every 12 months can give you valuable insight into whether or not there are errors on your credit.
2. Paying your bills late: Late payments can lead to hard inquiries affecting your score, which means it appears that you’ve applied for more credit elsewhere. Make sure you never miss a bill.
3 You Close Old or Inactive Credit Cards: If your close old cards, they may show up on your credit report for some time. Closing accounts can impact your score by causing “hard inquiries” that appear on your credit report. Before closing them, look for inactive or closed card accounts on your credit report.
4. You Have Negative Records: Many people think they’re protected because they haven’t had past credit problems. However, many factors may cause a “bad” rating to linger. A single application for a credit product with a low limit may count towards a negative review.
5. There Are Errors on Your Report: Mistakes such as missing debt or inflated balances can damage your credit report. Find out how much money you owe and what types of products you purchased, then try to dispute those entries on your credit report. Ensure you correct any information that needs to be corrected. Failing to do so could hurt your chances of getting approved for future credit.
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