For most of us, just dipping our toes into the world of credit and starting to look at the health of our credit scores can be daunting. This can all come off as something “we should have learnt in school”. If you are a young adult, use this blog as a basis to understand credit and key lessons to learn to make things less overwhelming.
Essential Lesson 1: Basic Budgeting
The understanding ofbudget planningis a basis of good financial health. At any age, it is important tobudget. With a budget, you are able to keep track of how much money is coming in and going out every month (income vs expenses). You want to create one budget for your basic needs like groceries, rent, utilities, Wi-Fi and transport costs (from petrol for your own car to Uber) and a second budget for wants. On the second budget you will have all your wants for the month and, depending how much you would like to save from your pay check, a percentage of that can go towards your wants: shopping, dinners and seeing friends.
Essential Lesson 2: Bank Account Basics
With any bank account, it is important to know that the bank is not just keeping your money on a fun little card. You can have accounts that do different things. For example, a debit account will stop any further transactions when the money runs out, and acreditcard will have an overdraft limit. You have options on thetypes of bank cardsyou want (not just the colour). You have a card for Credit, Debit, Cheque and Savings. For different bank cards there are different account fees and service fees (these include an overdraft, account fees and service fees). You also need to know what it means to be overdrawn and have overdraft fees.
Let’s break this down:
What Does Overdrawn Mean?
To be overdrawn is when you have spent more money than you had in your bank account. Now you are indebtto the bank.
What is Debt?
When you owe the bank money and they charge a fee (depending on your contract, this percentage amount may differ)
Account Fees
This is the amount of money you pay the bank monthly in order for them to keep your money in the bank. It may seem weird to pay the bank to keep your money, but this makes sense as they are keeping your money safe from fraud and theft.
Service Fees
A fee that the bank charges to service your account. These fees will cover the bank account, transaction fees and any other fees that come up.
Essential Lesson 3: Want vs Need
In a perfect world, young adults already know the difference between a ‘want��� and a ‘need’. To break it down simply, a ‘need’ is something you can’t live without (like somewhere to live, food, basic medical care, basic education, and basic internet access). A ‘want’ is something beyond what will fulfil your needs (like clothing, vacations, recreational activities, and your own car). When you are trying tosave moneyand can’t stretch that pay check, the ‘wants’ take a back seat to your day-to-day needs.
Essential Lesson 4: The Importance of Saving for Emergencies
Emergencies are just that, emergencies. No one expects an emergency and that is exactly why you need to keep money aside just in case something happens. No one expects a young adult to have a ‘fully kitted out’ emergency fund (i.e. an account filled with a lot of money to use for any and all emergencies that could arise, like an urgent medical appointment or car repairs). However it is important to put a percentage of your monthly income aside to start an emergency fund. A basic start would be, after all needs are paid for, to take 10% out of your remaining salary and put that into a savings account for that dreaded rainy day.
Essential Lesson 5: Developing a Positive Credit History
Developing a positivecredit historyis crucial at this time of a young adult’s career, as this is where it begins. The most important thing to remember with acredit card or short term loanis that money is not free, and you will have to pay it back with interest. Starting off your credit journey strong can look daunting, but knowing what you signed up for with a bank or loan provider, likeFASTA loans, can be what sets you up for success and a positive credit history.
A key takeaway is that all your bills need to be paid for, on time, every time. When you take out ashort term loanor a personal loan, and you pay it back on time, you are able to guarantee a positive impact on your score. You can take a personalloanor short term loan out with your bank or another loan provider like FASTA.
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Essential Lesson 6: Nothing is Guaranteed
The moment you realise nothing is a given in life, like one day having a job and the next you don’t, it’s important to attempt to prepare for those things bysaving money. As tragic as it is to even attempt to prepare for the worst, preparing for these harsh realities will help with future planning and not feeling so overwhelmed when they come up.
Essential Lesson 7: Learn When to Ask For Help
You are going to makemistakes when starting a creditjourney. Young adults are going to make mistakes when doing anything (that’s what being young is all about), but knowing when to ask for help is when you really start to come into your own on thecreditjourney. You can speak to a credit provider, credit counsellor, or use resources fromour blogto find more useful information.
Conclusion
Use this blog as a tool to know that you are not alone on thecredithealth journey. You can take a step back and look at the whole picture of where to start.
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