When you’re young, it’s difficult to think about your future and the long-term. It’s all about right now. All you can think of is getting a job and starting your career. You dream of earning that first paycheque and what you’re going to buy. Just the thought of earning your own money and being able to spend it is thrilling. But it’s important you realise that earning a certain amount of money doesn’t mean spending it all.
You need to start thinking very seriously about being responsible with your money and making smart financial decisions. Research has shown that South Africans are not good with money. We love to spend and we don’t save. A massive 86% of South Africans are in debt. The reality is that the money you earn while you’re young, and what you choose to do with it, is incredibly important. It’s essential that you understand your money now. Here are some of the mistakes you’ll likely make with your money while you’re young.
Being in debt
Being in debt is one of the biggest mistakes a young person can make. Debt is quickly and easily accumulated when young people attempt to live a lifestyle they can’t afford. Many young people are using multiple credit cards to not only pay for day to day expenses but also to use one to pay off the other. And if you can’t afford to pay off your debts, you might find yourself in very real trouble with the law. A creditor can obtain a judgment against you for the payment. If you still don’t repay what you owe, they might apply for a garnishee order. This is an order made by the Magistrate’s Court where the creditor attaches a portion of the debt owed by a third party (garnishee). The garnishee will deduct part of the debt, or all of it, and pay it to the creditor. For example, if the debtor is required to pay R5000 per month to their ex-wife for maintenance, but fails to do so, his ex-wife may apply to the court for a garnishee order. In terms of the order, the debtor’s tenant must deduct R5000 owed to him and pay it directly to the ex-wife.
Paying too much for a car or cell phone
It’s nice to have the latest cellphone and the fanciest car. But they aren’t necessary. They’re depreciating assets which lose value soon after you buy them. Rather, drive an affordable car and find a good deal on a cellphone. You might not look as trendy as your friends but you’ll have more money in the bank. And that’s more important for your future.
Sometimes purchasing property is a good thing and sometimes it’s not. It’s important that you never rush into buying property and do all of your research ahead of time. For example, did you know that properties priced under R900 000 do not attract transfer duties? Do you know what other fees and costs are involved in buying property? These are good details to know before rushing into buying a home. There’s a feeling among South Africans that owning property is essential. But sometimes it’s just not a good investment.
Not saving enough for your retirement
You might think you’re too young to worry about saving for your future. But you’re not. It’s never too early to start. Because of the power of compound interest, the money you invest in your twenties will have many years to grow, making it the most valuable money you’ll invest in your lifetime. Statistics show that a fraction of South Africans can afford to retire comfortably. So unless you want to continue working when you’re in your seventies or move in with family members in a cramped home, you better start investing. It’s important that you start investing for your retirement – at least 15% of your salary – when you first start working. If you haven’t done that, you’ll need to start putting even more money away. This might seem impossible but soon it will become a habit and will feel completely natural. Remember, if you don’t start investing when you’re young, you’ll have to start putting away far more money each month. And, because you’ve become used to your lifestyle and paycheque, that’s going to be a big adjustment.
It’s important that you stop making mistakes with your money. Be smart about your money and your future self will thank you. You really can’t put a price on peace of mind.