Bruce Brammall: The sound financial advice I’d give to any 18-year-old to help set them up for adult life

Damn. That happened so fast. From that first scary day of his life — and becoming a parent — to his last day of “childhood” earlier this month.
DebtBoy has turned 18. Legally an adult. It feels a bit like success, certainly parental pride, to have got him to here in reasonable shape, despite some fierce headwinds.
The amount of wisdom that I have been able to impart on him has been impacted by forces beyond his or my control. That is, slowly, changing.
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By continuing you agree to our Terms and Privacy Policy.And while teenage kids are pre-programmed not to listen to their parents, my son is breaking free, seeing his dad through more mature eyes and, recently, sometimes even seeking out my opinion, or even advice.
Which is great, because 18-year-olds think they know everything. But they don’t. And there’s a lot I’d still like to teach him, given an even break, about those early years of becoming an adult.
Of course, I’ll limit those today to matters financial — coming from both his dad whose been through it and his dad as a financial adviser.
However, he’s unlikely to read this, even if I print it out and put it in front of him. So, consider this general advice parents can give to their 18-year-old kids.
Avoid wealth vacuums
In your early, probably casual, jobs, you likely aren’t going to be earning much. So, avoid the big expensive mistakes.
Top of that for me is motor vehicles. Spend as little on cars as you can. New and expensive cars are wealth vacuums and suck you down financial holes.
The more expensive the car, the more money you are losing each year. If you buy an $80,000 car, it’s likely to be worth $40,000 in five years. On top of running costs, you’ve lost $8000 a year.
If your first car is a secondhand one worth $12,000, in five years it’s probably going to be worth $7000. You’ve lost $1000 a year.
It adds up quickly.
Similarly for clothes and technology. Feeling like you have to constantly look your best and have a large wardrobe of the latest fashion will keep you poor, to the tune of thousands of dollars a year.
Take some risk
When you get that first job, you’ll likely get your first superannuation fund.
If you are still a teenager, or in your early 20s, understand that you won’t be able to touch your super for at least 40 years.
Most super funds will just plonk you in a “balanced” investment option. But 40-plus years is an ultra-long-term time horizon in anyone’s language. So, you can afford to take more risk.
Consider moving your super into a more aggressive investment option, one that is almost solely made up of shares and property investments. And leave it there for at least a few decades.
Shares and property, over the long term, are more volatile than cash and fixed interest, but will generally outperform. Making the adjustment to go from balanced to aggressive at age 20 could, literally, possibly double your super by the time you get your hands on it.
Save and invest
Super is locked up, but the rest of what you earn isn’t. Sure, you’re going to want to spend some/most of it.
But you know — or need to learn quickly — that you’ve got to put some of it to work for you for later. That might be buying a home, getting married or travelling, as examples.
What you need in the short term — timeframes up to about three years — needs to be kept in cash. Just get the best interest rate you can.
But if you want to create real wealth in your lifetime, then you want to start investing as early as possible. It might not be with your first pay cheque, but it should happen as soon as you’ve mastered consistent saving.
Early on it might be a managed fund, or some exchange-traded funds. Later it might become bigger share portfolios or investment property. Add to those investments, automatically, every month.
Spend to grow
My recommendation to any kid out there earning money for the first time is to travel. Go backpacking. For long periods.
The fun you’ll have and the experience you’ll return with will take you through your life. You’ll see life differently.
As for DebtBoy . . . I’ll be patient in doling out the above advice. There’s a lot going on in his world. There’s art to the timing of giving advice. Part of that is knowing when someone is ready to receive it.
Bruce Brammall is the author of Mortgages Made Easy and is both a financial adviser and mortgage broker. bruce@brucebrammallfinancial.com.au