Tips for young adults to master their money

Track your income and expenses to get a clear picture of your financial situation and then, allocate your money wisely.

Managing finances can seem like an overwhelming and complex task for young people stepping into the world of adulthood. As they embark on this new chapter of their lives, they my find themselves faced with numerous financial responsibilities and decisions that can leave them feeling uncertain and anxious.

Karmen McDonald from Sanlam Indie says it’s not uncommon to feel overwhelmed at the concept of managing one’s own funds. “The key to starting out in your first job and managing your own money for the first time is to create good habits early on. It’ll be easy to create a healthy and manageable method for yourself to remain in good financial standing if you start out right.”

“The key to starting out in your first job and managing your own money for the first time is to create good habits early on,” says Sanlam Indie’s Karmen McDonald.

She recommends seven tips for getting started:

1. Create a solid budget

Budgeting is the foundation for financial success. Start by tracking your income and expenses to get a clear picture of your financial situation. Then, allocate your money wisely, ensuring that you cover your necessities, savings and with a little room for discretionary spending. Remember, budgeting doesn’t mean sacrificing all the fun stuff — it’s about finding a balance that works for you.

2. Tackle your debts head-on

If you have student loans or credit card debt hanging over your head, it’s essential to address them proactively. Make a plan to pay more than the minimum amount whenever possible, as this will help you reduce interest charges and pay off your debts faster. It might require some temporary sacrifices, like cutting back on dining out or entertainment, but the freedom from debt will be well worth it.

3. Build an emergency fund

Life can be unpredictable, so having an emergency fund is crucial. Aim to save three to six months’ worth of living expenses in a separate account. Start by setting aside a small portion of your income each month and watch your emergency fund grow over time. This will provide you with peace of mind when unexpected expenses arise.

4. Start investing early

Time is your greatest asset when it comes to investing. Even if you can only contribute a small amount, start investing as early as possible. The power of compound interest will work in your favour, allowing your money to grow over time. Do some research, explore different investment options, and consider seeking advice from a financial advisor to make informed investment decisions.

5. Plan for retirement

It may seem far away, but it’s never too early to start saving for retirement, especially in the South African context. Consider opening a Retirement Annuity Fund (RAF) or a Tax-Free Savings Account (TFSA) to begin building your retirement savings. These accounts offer tax advantages and can help you grow your money over the long term. Research has shown that starting early and even with relatively small contributions, can be more effective than starting in the middle of your career with a large proportion of your salary.

6. Protect your loved ones with life insurance

Life insurance is an often overlooked but essential component of financial planning. Consider getting a life insurance policy or an income protection policy to protect your loved ones in case of an unforeseen event. Life insurance provides a financial safety net and can help cover expenses such as outstanding debts, funeral costs, and ongoing living expenses for dependent while income protection replaces your income should you be unable to work due to injuries or illness. Research different types of life insurance policies and consult with a reputable insurance professional to find the best option for your needs.

7. Educate yourself about personal finance

Don’t be intimidated by financial jargon. Take the time to educate yourself about personal finance. Read books, follow reputable financial blogs, listen to podcasts, and attend seminars. The more you know, the better equipped you’ll be to make informed decisions about your money.

Ms McDonald goes on to say: “Financial success is a journey, not an overnight achievement. By staying proactive, you’ll be well on your way to building a solid foundation for your financial future. Take control of your finances, embrace a healthy money mindset, and enjoy the peace of mind that comes with financial stability.”