Maddie (Gen Z): I am new to the world of money, where should I start?
Emma (Millennial): It’s a great question and I think not knowing where to start is what stops a lot of young people making money moves. I recommend starting with awareness. What’s coming in, what’s going out, and how often.
Simply getting to know your regular expenses and how they stack up against your earnings gives you a clearer picture on what’s possible for you. From here, you can start with a simple budget, that ensures all your expenses are paid for, and gives the rest of your income a purpose. Failing to allocate money each month is one of the biggest money blunders out there.
Maddie: Ok, great. I’ve just started my full time job, so I really need a budget. How do I start?
Emma: Great question. My number one millennial money tip is to pay your expenses first – and that means doing a bit of maths (yikes!).
Take all your expenses and work out an equal amount from each pay you need to cover them all. You do this by adding up your total expenses for a year, and dividing it by the number of paydays you have in a year. Then, open a new account if you don’t have one spare already, and set this to become your bills account. Each time you get paid, transfer your expenses allocation straight into this account. That way, you know you’ve covered everything that’s about to fall due.
One of the biggest mistakes I used to make was paying my bills and expenses on an ad hoc basis, so if I had a payment due at the end of the month, I’d leave it until my last payday week to pay it. That meant some weeks I had plenty of spare money, and some weeks I was barely getting by! You can also use tools like Pocketsmith to forecast your bills so you never miss a beat.
Once you’ve paid your expenses, split what’s left using percentages. For example, you might allocate 40% of your after-expenses income to day-to-day spending, and 20% each to three savings accounts. Using percentages means that when your income goes up or down, you’re still allocating the same proportion.
My final budgeting tip is to pay your savings accounts as though they’re bills. Just like when your pay comes in and you send money to your bills account, do the exact same with your savings. A common mistake is to say you’ll save whatever’s left at the end of the pay cycle… but we all know what happens when we’re left unsupervised with money!
Maddie: Yep! That money just gets spent! Okay, so what about an emergency fund? Do I need to worry about this while I’m only 22?
Emma: Emergency funds are so, so important, and the earlier you can get onto it the easier it’ll be to build up. Your emergency fund is something you should be continually adding to as your financial responsibilities grow (i.e. when you move out of home, buy property, etc).
While you’re young and perhaps have fewer financial burdens, it’s a great time to start building savings for a rainy day. A set amount from each pay will add up over time, and starting young means you can take advantage of compound interest. Bonus!
Maddie: Wait, what’s compound interest?!
Emma: When you earn interest on money in your savings account, that gets added to your total balance. Then, when your interest is next calculated, you’re earning interest on your balance plus the interest you got paid last time. Over time this compounds because you earn interest on your interest. It’s great for long term savings like emergency funds, because you’re leaving your money alone for several years or even longer, meaning you get the maximum benefit.
Maddie: I have a student loan that I need to start repaying, how do I manage this with all my other bills? Should I be repaying it as soon as possible or making regular payments?
Emma: Student loans are a really interesting one. Generally in Australia and New Zealand, student loans are paid back as a percentage of your income over a certain threshold. Because this type of debt isn’t considered consumer debt (i.e. credit cards, personal loans, etc), it won’t necessarily have a negative impact on your future finances.
What’s usually taken into consideration is your repayment liabilities, so if you’re applying for credit like a loan or a mortgage, you’ll be assessed based on your income after your repayments. This can impact your borrowing capacity, but it really depends how much you earn, how much you’re trying to borrow, and how much you’re repaying each month.
Phew! Budgets, emergency funds, student loans – there are plenty of ways Gen Zs can get on the front foot of their financial future. Tune in for our next interview series for more millennial money tips.
Emma Edwards is a finance copywriter and blogger, on a mission to humanize the financial services industry by creating meaningful content that’s accessible and empowering. You’ll find her penning money tips at her blog, The Broke Generation, sharing financial insights on Instagram, or injecting life into content for her business clients.