1. Don’t get too excited about credit
Whilst it’s almost always not possible for young people starting out in their careers to buy household goods and clothes for cash, I urge caution in the use of credit and retail store cards. Because one is not paying with physical money and is new to the use of credit, it is easy to build up significant debt that will take years to pay off at the start of one’s career.
2. Do you need that new car?
If you feel you need that shiny new car save up a decent deposit, ideally 20% and pay off the loan for the balance ideally over three to four years. Buying a new car using fancy financing such as no deposit, 30% residual, pay over 84 months, guaranteed buy back, et cetera is just not worth it. My recommendation is buying a good used car that is about three years old and paying it over three years.
3. Budget religiously
I am always amazed at the number of young adults who think that budgeting is for those with lots of money! Budgeting is for everyone. Budgeting forces you to track your finances and this is the start of the journey to financial wellness. With so many apps and free software to track monthly expenses, there is no excuse for not doing so.
4. Make the maximum contribution into the company retirement fund
Young adults starting out want the highest net pay and usually achieve this by making the minimum contribution into the company retirement fund. This is a mistake for a few reasons. You miss out on the benefits of investing for a longer period, the power of compound interest and the opportunity to start early to build retirement savings. Research shows that very few employees who select the minimum retirement fund contribution, ever change them once they get used to the higher net pay!
5. Know your needs from your wants
One of the keys to saving money is to know your needs from your wants – a subtle difference that many people struggle with. You need a mobile phone but want the latest iPhone on a contract of a whooping R500 per month or R6000 per year! Do you really need that iPhone? Many things look cheap, when thought of as a few hundred Rands every month. But this adds up to thousands per year.
6. Eradicate short term debt
Paying off short term debt such as credit and retail store cards is one of the best investments you can make. This requires a plan, is hard and painful as you sacrifice other things but is worthwhile in the end due to the peace and freedom it brings.
7. Invest in your financial education
Most people learn about managing money through trial and error! Financial literacy is an investment that will pay back many times over. The path to financial wellness starts with a good grasp of the basics of personal finance.
8. Set goals for your future
Getting ahead in life requires planning and setting goals. If you want to make big purchases like buying a house or a car, plan it out. If you want to make more money, set goals and plan it out. If you want to get out of debt, track your expenses, know your financial situation, plan and set goals. Don’t leave it to chance or luck.
9. Stop keeping up with the Kardashians
As friends appear more successful through how they dress, where they dine and what they drive, the temptation to keep up with them is high. But at what cost? You get ahead by behaving in a way that gets you there not by keeping up with the Kardashians. It is as simple as this: you save money by spending less; and you make more money from hard work and discipline, not get rich quick schemes.
You might want to read about these 5 money rules to follow when you start earning a salary.
