I’m not saying that the education I received wasn’t valuable. It’s done me a hell of a lot of good. I’m just saying that seeing magnesium light up on a Bunsen burner, or finding sin, cos and tan, probably have been less helpful for me on a day to day basis than, say, basic economics.
There are some things that really should have been taught at school that would have made my first forays into the real world much easier. These are just a few of them...
Is credit good or bad?
This is a lesson that a lot of people (myself included) had to learn the hard way, by getting in a bit over their heads and having to fight to get their bank balances back up to zero again. Credit, as with everything, is neither good nor bad. It is simply a useful financial tool that can provide you with the means to buy your own house, for example, or afford a holiday or a car. If understood and used correctly, credit can be really useful.
However, if you don’t understand the mechanics of the agreement you are entering into (be it a loan, or a credit card etc.) then you could find yourself in some hot water. Whenever you decide to sign up for something always read the fine print and make sure you truly understand the nature of the situation. If you are applying for a credit card, make sure you know the APR, the date the money is expected to be paid back each month, and understand what your financial limits are for paying back money each month. For example, don’t charge £5,000 on your credit card if you can only afford to pay back £20 a month out of your current paycheque; you won’t end up in a good place.
Speaking of credit and APRs….
What the hell is interest?
Interest rates at large, are set by the Bank Of England.
An interest rate is the percentage of the loan that is charged as interest to the person who has borrowed it. (ex. With a 3% interest rate on £1000 loan, the full amount that will need to be repaid is actually £1,030). For personal loans interest rates can range from anywhere between %5 up to 36%.
For credit cards, the interest rate is the price you pay for being allowed to borrow the money. They call this APR (Annual Percentage Rate). These are usually relatively high, and usually it will only be charged on any outstanding balance that isn’t paid off in full at the end of the month. This is why it is always best to pay off your credit card balance in full each month to avoid extra charges.
Another piece of wisdom it would have been good to know beforehand!
What is investing?
There are a lot of different ways to invest your money that all carry different risks and rewards. We’ve written a ‘starter’ article to introduce you to the basis of investing in more detail.
However, in short, investing your money means you put your money into a scheme, or a company, or a property, with the expectation that in the future that thing in which you have invested will grow in value. This means that your money will also have grown in value. (ex. People who first invested in Facebook, when it was small and unknown, will now be laughing).
It’s a different way of making your money work for you without you needing to give up more of your blood, sweat and tears. It’s famous for being high risk, but that is not necessarily the case. There are many different types of investment, including low risk options, and it would have been nice to have learnt about them all at school so I would have felt qualified to invest my money earlier, and more wisely.
How do I know I’m paying the correct tax?
Depending on what you earn, or whether you’re PAYE or self-employed, the amount of income tax you pay will vary.
Usually, if you are PAYE your tax, student loan, and I payments etc. will be deducted from your paycheque before it reaches you. This is handy, as it means you don’t need to calculate it all yourself, but ALWAYS make sure you double-check their calculations. You don’t want to be overpaying your tax and being given less money than you deserve. Equally, and perhaps more importantly, you also don’t want to be underpaying your tax, because having a hefty bill to repay Her Maj’s Revenue and Customs Agency can be a very stressful ordeal.
To find out whether you are paying the correct tax there are plenty of reliable tax code and salary calculators online, such as this one. Always have a quick check to make sure everything adds up as it should. The buck stops with you here unfortunately.
How much of my paycheque should I be saving?
There is an ocean of advice out there on the Internet about how much of your paycheque you should be banking each month. Most advice spans form 10% right up to 20%.
What it essentially comes down to, is: save as much of it as you can afford. Some months that may be nothing, other months it may be 25%. There’s no hard and fast rule.
However, what would have been nice to learn at school is how to run and maintain a budget around your income, including pension and savings contributions. To go out into the world with some solid knowledge about the importance of maintaining your finances would have put everyone on a firmer footing.
What is important to remember about savings is that they provide a buffer between you and disaster, so, rule of thumb is to save as much money as you can as regularly as you can.