Young bucks have time to make big bucks

START EARLY: If you've just landed your first proper job at the tender age of 20, retirement is the last thing on your mind.
START EARLY: If you've just landed your first proper job at the tender age of 20, retirement is the last thing on your mind.

Back in 1964, The Rolling Stones sang "Tiiiiime is on my side, yes it is".

Wind the clock forward half a century, and the ravages of time have stripped Mick Jagger and his grizzled band of rockers of most of their youthful allure.

It's also transformed them into multi-millionaire global superstars.

When you're on the bottom rung of the career ladder, with nary a penny to your name and a big student debt hanging around your neck, being young is not always fun.

But time is indeed on your side. When used wisely, youthfulness gives young bucks a big advantage over the old fogeys.

Here we've pulled together five key strategies for nailing your finances and getting ahead - right from the start of your working life.

1. Start early

If you've just landed your first proper job at the tender age of 20, retirement is probably the last thing on your mind.

But the sooner you start the ball rolling, the easier the path to financial independence becomes.

That's mostly because of the near-magical properties of compound interest.

Let's say you're stashing away a modest $50 a week. By age 65, as interest builds on interest, it will have snowballed into a nest egg worth roughly half a million bucks.

But if you don't start saving until you're 30, it might be more like $280,000. By age 40, you'll only have $150,000 or so, and about half that again by age 50.

David Kneebone, executive director of the Commission for Financial Literacy & Retirement Income, says it's hard for people in their 20s to think about retirement - it's just so far away.

The beauty of a scheme like KiwiSaver is it gets you saving without even thinking about it. And with contributions from your employer and the Government, there are strong incentives for signing up.

KiwiSaver is a good start. But if you're young, with no kids, and on a half-decent wage or salary, you should be able to squirrel away a lot more.

2. Take risks

If you're going to take on a bit of calculated risk, your youth is the perfect time to do it.

Once you start saving some spare cash, instead of leaving it in the bank you can consider investing it in higher-growth areas, like the stockmarket or property.

The theory is that you've got the luxury of time to ride out the big peaks and troughs, and will come out further ahead in the long run.

Spicers financial adviser Jeff Matthews' rough rule of thumb is that your age represents the proportion of your savings that should be in 'safe' investments.

That means a 25-year-old would have a quarter of her money in bank deposits and bonds, for example, and three quarters in things like stocks and property.

"It's not very scientific, but it actually works remarkably well," says Matthews. "Around that, you can adjust the as and when."

Sorted also has a great tool for working out which investments suit your personal circumstances.

Even if you don't do much direct investing, you still need to think about risk. Matthews warns that a lot of KiwiSavers could end up disappointed by staying in the wrong fund.

The default funds are conservative and therefore are likely to produce lower returns, which may not match the risk profiles of lots of people joining up.

3. Pay upfront

The social pressure to own a nice car, flash clothes or the latest iGadget can quickly lead you into trouble.

A few years ago, David Kneebone's organisation did some research that involved chatting about money with a bunch of 18-24 year-olds. 

"One of the things that surprised me was how comfortable people were taking on debt," he says.

In fact, a couple of group members who said they would save up for a new dress and an iPhone were mocked by the other members for not simply buying them on credit immediately.

Kneebone says the 'keeping up with the Joneses' trap can affect all age groups - not just the young.

Sometimes debt is unavoidable. But in these sort of situations, it really comes down to needs vs wants. 

Consider ditching your credit card and forcing yourself to save up for every purchase. Once instilled it will become a good habit for life.

4. Use leverage

There's an exception to point number three. Debt can be good - but only if it's going to get you further ahead in life.

The obvious example is a student loan.

Higher education often leads to a higher income, says Kneebone, which is one of the key factors that shapes your financial future.

In this situation, getting a big student loan can be worthwhile.

"The figures sound high, the figures sound scary, but really, it could make a substantial difference for the next 40 years," Kneebone says.

It helps that the loan scheme is currently still generous. If you have a loan and live in New Zealand, it makes financial sense to pay it back as slowly as possible.

Even if you're not interested in climbing the ivory tower, you might consider borrowing to get a car, a nice set of clothes for a job interview, or tools of the trade.

You basically have to calculate whether investing in these things will pay off in the long run.

"You're gambling to a degree," says Kneebone. "For many people, it's a gamble worth taking."

5. Network

One of the toughest things about starting out is you don't know anyone, and no-one knows you.

You've got to start building your personal brand, and these days, social networks are a great place to do so. For young people brought up with the internet, this should be your bread and butter.

"If you're serious about your professional career, you need to be on LinkedIn," says Frog Recruitment director Jane Kennelly.

She says all recruiters will check LinkedIn, and many will also have a snoop around your Facebook.

There's a lot of debate around that.

"Facebook is fantastic for both personal and professional networking - it just means people have to be very careful about what they post on their pages," says Kennelly.

That means you've got to delete the drunken yardglass-swilling photos or crank up your privacy settings - and preferably both.

Then there's Twitter, which is especiallly good for dialogue and interacting with others. Again, use it wisely. No-one needs to see endless Instagrams of your dinner or your cat.

Too long; didn't read

A quick summary for those with short attention spans who skipped to the end.

Financial advice website Sorted bases its central campaign around the 'Think, Shrink and Grow' strategy.

Here's how it applies to young adults:

Think - about long term goals; whether that be a big OE, home ownership, or financial security. Plan ahead and think about insuring vehicles and possessions.

Shrink - avoid debt where possible, make a repayment plan, and pay off your student loan last.

Grow - save regularly, start as early as possible, and don't be scared to take on more risk if you're in for the long haul.

We can't promise you'll enjoy the fame and fortune of the Rolling Stones - but at least you'll make it to retirement age with your finances in good health.

BusinessDay.co.nz