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Partners
During Youth Month, I receive many press releases on the importance of saving and investing from a young age. In your first job, you may not be earning a lot of money, but you have time on your side and time literally grows money.
The graphic below from PSG Wealth shows how, the sooner you start investing, the less you will need to save each month.
But, it is hard to find the discipline to save or manage your money when there are so many things to spend it on. You need to start thinking differently about your money.
Calculate your future worth: Calculate how much you will earn over the remainder of your career. You take your current annual salary and multiply it by the number of years to the age of 60. If you are 25, that means 35 years.
This does not consider any promotions or significant salary increases, so it is the lowest amount you would probably make. Ask yourself today what you want to show for that R6.3 million.
Write down what your dreams and aspirations are and remind yourself of these each month before you start spending. Ask yourself whether the way you are treating your money reflects those dreams and goals.
Know how much is enough: This is possibly the lowest salary you will receive – from here on you will get increases and, hopefully, promotions.
For every salary increase, you will find some justification to increase your spending as well and you will find that, no matter how much you earn, it will never be enough.
Parkinson’s law is one of the most important laws of money and wealth accumulation. The argument is that expenses always rise to meet income and this explains why most people retire poor.
READ: Personal Finance | Less cash is coming home
That is why we end up in debt and take on credit we cannot afford and generally feel dissatisfied with our finances. If you commit to saving at least 50% of every extra rand you earn in the future, you will be set for financial success.
For example, if your next salary increase is R1 000, you allocate R500 towards an investment.
Avoid lifestyle credit: As Parkinson’s law argues, our expenses often exceed our income. This gap is then funded by debt. It is debt, not how much you earn, that is the real cause of financial stress.
You will have so many opportunities to borrow money which you believe will help you reach those dreams and goals, but in most cases credit is a dream wrecker.
Avoid store and credit cards and, if you do buy a car, make sure that the repayments do not exceed 15% of your income.
Ideally, do not finance the car over more than 60 months and never, ever take a balloon payment.
