Build wealth in your 20s
SUSTAINABLE MONEY CREATION: MASTER BUDGETING AND CULTIVATE A SAVINGS MINDSET
Learn how investing works so that you fully understand the power of compound interest.
One’s 20s can serve as a critical juncture to lay the foundation for sustainable wealth creation. From mastering the art of budgeting to cultivating a savings mindset, this article aims to give practical insights to twenty-somethings intent on creating lasting wealth.
Make budgeting a habit
Budgeting is habit forming, and learning to use a budget early on in your career will help create excellent money habits for the rest of your life. Remember, while you are young, single, and your finances are relatively uncomplicated, budgeting is likely to be a fairly simple exercise. As your personal circumstances change and become more complex, so too will your budget.
Create an emergency fund
Lack of adequate emergency funding is often the reason people find themselves in debt. Take stock of your personal circumstances, income and expenditure, and then determine a level of emergency funding that you feel comfortable with. It‘s wise to keep your emergency cash in a separate account that is specifically earmarked for these purposes.
Establish a solid credit history
Being able to obtain vehicle and property financing will depend on your credit score, so be very cautious when buying anything on credit. Any late payment or default will negatively impact your score, so if you do have credit, be religious about making your repayments in full and on time every time.
Pay cash
When it comes to funding your living costs, be sure that you are able to pay cash and that you do not need to incur debt in order to survive.
Avoid buying too much car
Avoid the temptation of buying more car than you need, even if you have the disposable income to do so. Instead, opt for a reliable and functional vehicle that will serve your needs and keep you safe on the roads.
Pay yourself first
Paying yourself first means managing your finances in such a way that you prioritise yourself – both your current and future self – in all decisions that you make. The costs of doing business as a young person include being able to produce a good credit score, showing proof of a well-managed bank account in your own name, being able to provide proof of earnings, being in good standing with Sars and having access to your FICA documents.
Know your financial personality
Spend time understanding your relationship with money, how you feel about debt, what your money value system is, and what your spending habits are. Early identification of what drives your financial behaviour can help you identify problems before you potentially succumb to poor decision-making.
Retain financial independence
It is never ideal to become financially dependent on someone else or to rely on another person to fund your financial future, even if you believe that you and your partner or spouse have committed to being together forever. Not only can it result in a shift in relationship dynamics, but it can leave you financially vulnerable if the relationship comes to an end, either through death or divorce.
Know how investment markets work
Be intentional about educating yourself about investing, investor behaviour and the various investment vehicles available to you so that you fully understand the power that compound interest holds on your financial future.
Learn how to e-file
Ensure that you register as a taxpayer as soon as you begin earning over the tax threshold, and make sure your details with Sars are 100% correct. Ideally, learn how to submit your own e-filing and be sure to file your returns on time every time.
Invest aggressively
With youth being on your side, be careful not to invest too conservatively if you’ve taken a long-term view of your investments. An investment portfolio that is too conservative and doesn‘t include sufficient growth assets can result in your invested capital losing value in real terms over time.
Choose your life partner wisely
Money is the number one source of conflict in most relationships, so make sure you choose a partner who shares your money values and is committed to building a financial future together as a team.