Being a young student or professional is a beautiful thing, it is a time to learn, see the world differently and apply different methods from what our parents do. Often times we wish we’d done things differently during this period — maybe, applied our knowledge earlier. So, let’s look at financial lessons to apply early and make a habit of right now as we try to be financially and economically free as youth.
Being young is about learning the side-hustle and mastering it; making income and keeping it; learning to create income digitally and working remotely; being a digital nomad; and ensuring that our health is maintained and always looked after. With all that being said, we are still trying to figure out the cheat codes for money by learning new things and applying the old ones with a modern twist. So, let’s look at old but new financial lessons we need to learn and unlearn:
- Emergency funds will always be important and the sooner you save for a rainy day, the more peace you will have.
An emergency fund contributes towards an optimal mental state — it makes you less desperate and protects you from being abused or being miserable in your employment, as it makes it easier for you to leave a job that could harm your health. The aim is to set aside six months’ worth of living expenses, but going for a year is even better. Aim for double your monthly expenses and always consider the question, “if I stopped working right now, how many months can I survive?”
- Learn about the securities exchange.
Remember there is a difference between trading and building wealth. Trading is a sprint, while building wealth is a marathon. It’s perfectly fine to start with one share a month, progressively increasing the number with time. Approach it in a simple way — look at the top 20 wealthiest people in the country and buy shares according to the way their portfolios are structured; buy in financial institutions; buy in the food brands your parents liked eating that you now enjoy. So, go from spending money on expensive clothing to having a share portfolio. The banks have made it easier by letting you open share accounts with them. Do not approach it like a trader, rather approach it like an investor. You are not looking to getting rich quickly, you’re looking at building wealth.
- Debt is not your friend. Borrowing from the bank will teach you about compound interest the hard way.
You will learn that not understanding compound interest is the reason you are always in debt, but learning about it will also ensure that you find ways of earning it. Banks and financial institutions will target you as just another interest- paying client to them. Consider this: banks will lend you money at an interest of between 15%-25% but will let you only earn between 4%-14% when you deposit money into your account.
- Buying a property is not as daunting as it’s made out to be, in fact, with the correct research and guidance, it can be very empowering.
First, you need to distinguish between a residential property and an investment property. Many ‘property coaches’ convinced people to buy into their property development as an investment and has resulted in people being property poor. You need to ensure when purchasing an investment property that the property becomes cash positive. This looks at the additional income after subtracting the bond, rates and taxes and all other expenses.
- Financial planners are simply better equipped than any financial coach you’ll find on social media.
Get a financial planner early and ensure that you have a financial plan as you start your first job. Learn what they do does so you can always question their actions. It’s very important to remember that there is a difference between an independent and tied financial planner. The former will focus primarily on you as you have employed them and you pay their salary, and the latter is employed by the product provider and likely to only invest in said products.
- Retirement savings are the most important savings you will do and they help reduce your taxes.
Saving for retirement is the reason why your kids will not have to pay black tax. Do not make the mistake most people have made of resigning from your company and withdrawing the funds to spend on frivolous purchases. Ensure that you start saving early, as the longer you wait the more expensive it becomes.
Khotso Ramphele is the founder of My Advizar (Pty) Ltd and authorised financial service provider in terms of the FAIS Act. He has over 15 years in the auditing, accounting, taxation, business consulting and financial planning. Ramphele is a former financial guru at YFM and can be currently be heard on stations like Power FM and Voice of Wits FM speaking about all things money.
Please note that the information provided above does not constitute financial advice; in fact, we are precluded from giving specific advice. Generic information has been applied given the context of the subject. We have limited details about you and your circumstances — such detail may impact any advice provided.