Financial Advice For My Younger Self
I remember that feeling I got when I received my first salary. I was totally elated and felt very grown up. I was young, employed and living my best life!
I also remember thinking that I should be sensible with the money, but that nonetheless I deserved to “spoil myself”. I decided that I needed to get something that would last me a long time. Something that I could always point to and say: “I bought this with my first salary”. So I went ahead and spent half the month’s rent on a piece of art.
However, soon the realities of financial responsibility kicked in. There were bills that had to be paid, medical aid contributions, appropriate work clothes that had to be bought and I had to start paying off my student loan. I quickly understood why people were always so excited when payday was around the corner – not to splurge, but just to be able to stop worrying about money for a couple of weeks.
With this in mind, here are some things that I wish I had known as a young 20-something earning my first salary:
Always have a budget and be realistic
Start off every month by drawing up a budget. Start with your salary slip – understand your income breakdown and the deductions taken off. Then list the debit orders that will go off from your bank account (rent, medical aid, student loan repayments) and all the other necessities that you will need for the month (groceries, electricity, fuel). Be realistic about how much you will spend. Once you know what you have left, then you can plan your social activities and shopping. Also, be realistic about your needs and wants. Do you really need a brand-new car or the latest iPhone?
Pack your own lunch
Although it is very tempting to go out for lunch every day or to start your mornings with a good cappuccino, think twice before you swipe. Spending R30 on a Woollies lunch and R25 on a Vida latte every day can add up to R13 000 a year! Rather buy a reusable coffee mug, bring your own coffee, juice bottle and lunch (sandwiches, leftovers) to the office, and save that money for a nice holiday at the end of the year! Your budget will also look a lot better this way.
Understand the wonder of compound interest
Start saving as soon as possible, even if you think the amount is too small and negligible. Compound interest isn’t the eighth wonder of the world for nothing! By just saving R300 per month every month of your working life, you can get out R2 000 000 when you retire. Your retired self will definitely thank the younger you for making this wise decision early on.
Be wise with debt
The best advice would be not to take on debt, but that is not always realistic. However, if you do take on debt, manage it wisely. Always pay off the debt with the highest interest rate first and as soon as possible. This will typically be a clothing store account or your credit card. Once that is paid off, then focus on debt with lower interest rates, such as your student loan or vehicle finance.
Also, never miss a debt repayment. Being late with a payment or missing a few will affect your credit score, which will again affect your interest rate and debt ceiling when you apply for credit in the future. Imagine wanting to buy a house later in life and finding out that you don’t qualify for a mortgage because you missed some clothing store repayments when you were younger.
Choose your insurer wisely
Insurance is important at this stage of your life, as you need to protect yourself and your assets. However, don’t just sign up for the first and best insurance you are offered. Certain long-term insurers, who insure you personally against death, disability and critical illness, offer preferential rates for professionals or persons under a certain age. Make sure you get quotes from a variety of insurers (or deal with a financial planner who can offer you choices) and choose the best one for you. Understand the fine print and exclusions, and watch out for high annual increases! Short-term insurers, who insure your assets against theft and damage, try to lure you with claim-free bonuses and cash for quotes. Again, understand the fine print, exclusions and excesses, and make sure you make an informed decision.
In all of this, and throughout all the stages and phases of your life, a financial planner can help you. (That is, apart from packing your lunch.) Spend the time and energy to find someone who is qualified to give advice and whom you can trust to help you make wise financial decisions right from the start of your working life. If you do, you’ll not only be able to buy those artworks that brighten your life, but you’ll also have the peace of mind knowing that your financial wellbeing has been established on solid foundations. Be the younger self your older self will have no regrets about!
 R300 per month invested for 40 years at 10%
18 Jun 2018