Making Cents: Six financial tips for newly hired employees in Kildare

I WORK with a lot of companies who ask me to provide one to one financial advice for their employees. And as part of this initiative, I encounter young people who have just graduated and are starting out on their working life.

And whilst they don’t have very specific financial plans in place right now, they do ask for guidance as to what they should be doing from a financial perspective and what they should be looking out for.

Because it’s easy to get overwhelmed regardless of what age you are, when you’re reading or listening about shares, pensions, mortgages, budgeting, tax etc.

It can all seem very complicated and contradictory, and for those who don’t get the right advice, they can suffer from what’s known as: DNA – Do Nothing Approach.

So, in this weeks’ article I thought I’d share with you what I typically tell people who are at the beginning of their working life. I’m going to tell you what tips and habits I want them to form. Because if they heed what’s very simple and practical advice, I think it could stay with them throughout their lives, and in no time, they’ll set themselves up for financial success now and in the future.

1. Establish a Budget

You don’t want to end up living pay cheque to pay cheque, and how you avoid this forever happening is to put a monthly budget in place.

It may seem very boring and an obvious step to take, but it’s an area a lot of people struggle with. And the reason why you create and follow one in the first place is simple – it helps you do more with the money you earn.

If you don’t know what you’re up against, you can’t identify the areas you are under or over-spending on. And yes, I said under-spending. A budget, contrary to popular belief, isn’t about cutting back on your spending, it’s about awareness and making the necessary adjustments in order to achieve whatever goals/lifestyle you want to have.

It’s finding that happy medium that allows you have a good time, save, and not being in a situation every month, where you’re counting the days until your next paid.

You need to break what could become a feast or famine cycle, and a budget will help you with this.

2. Establish a Rainy-Day Fund

This is really important, and if you’ve no reason or obvious purpose to start saving right away, and you think what’s the point, then let me give you a big reason why.

I meet people all the time who are 30 days away from being unable to pay their rent or mortgage and are really living on the edge. If there was a change in employment, or there was a transitory period before you next get paid, or some unforeseen expenses occurred, that’s where your emergency fund kicks in.

There’ll be other reasons, you can’t readily think of right now where you’ll need access to money quickly, and that’s where having that emergency fund will be so invaluable. It prevents you from getting into debt, asking your parents for money, and/or having to move back in with them.

I think aiming for two months of your net monthly income is a good number to save towards.

And you’re not going to get there as quickly as you would like, and that’s okay by the way. If it takes you a year, two or three it doesn’t matter. What matters is you’re setting aside money each month towards this goal.

3. Avoid Debt

Once you get your first job, it doesn’t mean that now you have an income, you can start applying for credit cards or loans.

Other than buying a house, a car, or your wish to further your education, you should try and pay for everything else you need with cash and/or savings.

4. Join the Pension Plan

If your new employer has a pension scheme and you are asked to join, then do so immediately.

Trust me on this.

You have an incredible advantage over others, and you should make the most of it, and that’s your age. You’ve time on your side, and how much you put in, isn’t nearly as important as starting early. The longer your contributions and those of your employer are invested, the bigger your fund will become when you’re older.

Let me give you an example of this.

If Susan started saving €100 each month at age 25 and stopped altogether 10 years later at 35, when she reaches 65, at an annual growth rate, of 7% she’d have €140,484 in her fund.

If Eddie delayed saving until he was 35 and saved €100 every month for the next 30 years, at age 65, again at an annual growth rate of 7%, he’d have €121,997 in his fund.

So, even though Dermot saved three times longer than Susan, he’s still c. €18,487 behind her.

And that’s the value of starting your pension early.

So, whatever your company will contribute, begin your retirement journey by matching it.

This is free money you’re getting from them, so take advantage of it, and let signing up to the retirement plan be one of the first things you do - don’t be an Eddie.

And if the company doesn’t have a group scheme or you have to be a certain age before you can join it, don’t let that put you off because you can set up your own pension (I’d recommend a PRSA) and then transfer it to a group scheme when you join it.

5. Set Goals

If your reason why is a strong one, it becomes easier to save and avoid debt throughout your working life.

I would recommend you take some time out every year, to find out what your reason why is.

What do you want to do or happen over the next year, two or three? Because when you know, it makes your effort and hard work that bit easier.

If you have a plan to go on holidays, buy a car, save for a deposit on a house, you need a clear-cut plan as to what you have to do, in order to achieve it.

And again, it’s not difficult to figure out.

For example, if you’re 25 and your goal is to buy a property at age 30, you’ll need a minimum deposit of 10% deposit. And if that deposit is for example €30,000 then you need to save €500 every month (€30,000/60)

If you want to go on holidays next year, without taking on any debt to pay for it, and you need €2,000, then start saving €167 every month into a dedicated holiday savings fund.

Whatever your reason why is, put a number on it, divide it by the number of months you want to have it saved by, and that’s the amount you need to save each month.

6. Take Advantage of Employer Benefits

I come across people all the time who don’t realise what additional benefits their company provide other than perhaps health insurance and pension contributions.

Some will offer death in service benefits, income replacement in the event of people being unable to work because of an accident or illness, discounted share purchase schemes, independent financial advice planning and so on.

I’d say familiarise yourself with what’s available so that you get the most out of them, and you could begin by asking your HR department and/or your co-workers what they are, because some or all of these benefits can help boost or stabilise your personal finances along with improving your physical and mental health as well.

Liam Croke is MD of Harmonics Financial Ltd, based in Plassey. He can be contacted at [email protected] or www.harmonics.ie