Advice for the young
Being in your 20’s is a time of wonder, of newly discovered independence and carefree fun. There are very few older people who would say that it should be anything else however it would also be true to say that fortune favours those who plan ahead. By all means have fun but give the future a thought.
Very few twenty somethings want to think about their old age. Apart from anything else it seems a lifetime away. If you’re a Millennial, know this about financial planning: time is still on your side, but it won’t be for much longer.
Building the resources you need to help you accomplish what you want in life isn’t complicated, but the sooner you start, the better off you’ll be. If you wait too long, until you are in your 40s or 50s, you’ll have to save and invest a much larger portion of your income.
Here are five tips to help give you the confidence to shed whatever doubts may be holding you back. The most important rule of financial planning is: start now and start somewhere.
Tip 1: Compound interest is your friend
There is no doubt that compound interest is the most powerful force in the universe. If you invested just R5 000 per annum starting at age 20 and continued until you were 60 at an annual interest rate of 10.75% you would have R2 716 043 in your bank account. If you only started when you were 30 this amount would only be R948 604. Compound interest is the type of interest you accrue when the interest you earn on your savings or investments begins to compound on itself.
Tip 2: Start investing…it can be fun!
While investing early and often can help anyone in their 20’s begin building wealth, that doesn’t mean investing is the answer to every problem. Carefully monitor your spending habits and make savings and budgeting part of your daily routine until you are more financially stable. Really look out for the best ways to save money.
Tip 3: Money is a tool
If you’re in your 20’s and ready to build wealth, recognise that the money you earn is nothing more than a tool to make smart choices. You need to remember that while you’re trading your time for money today, in the future you will be able to use your money to give you the time to do more of the things that really matter in life. Set both short and longer term investment goals and then plan accordingly.
Tip 4: Retirement is a drag but a reality
Your 20’s are a time when there are almost too many goals to save for. Your best bet is to start investing gradually then ramp it up as you age. Start with just 1 percent of your income, then increase the percentage gradually by 1 percent. By the time you reach your 30’s you’ll be saving 10 percent of your income. By your 40’s, you’ll be saving 20 percent of your income. And if you get a raise every year, you may not even notice the difference.
Tip 5: Forget the Joneses
Don’t try to keep up with Joneses – it only means you run the risk of spending money you don’t have. Choose your luxuries carefully and don’t fall into debt by financing everything with your credit card. Cash remains king. You can start investing for as little as R50 per month and if you follow some of these simple tips you will be well on your way.
The classic money movie of the 80’s, Wall Street, was known for quoting the lead character, Gordon Gekko, as saying greed is good. It isn’t but neither is poverty. Have fun, enjoy your twenties, make memories and live life but keep an eye on the future and make sure that one day you aren’t the old guy at the end of the bar saying shoulda, coulda, woulda.