Start saving in your 20s

GREATEST IMPACT: DON’T UNDERESTIMATE SAVING AND A SIDE HUSTLE

See where you can cut your expenses and start small. Moneyweb

So you’ve just started your first formal job, and your first pay cheque is more money than you ever thought you’d see.

So it’s time to start living your best life, right?

Not so fast

Herenya Capital Advisors’ Petri Redelinghuys says a common mistake that 20-somethings make, is the moment they get their first pay cheque, they spend big and save nothing, because saving for the future or for retirement is the last thing on their minds.

Reckless spending during the early 20s is normal, says JustOneLap’s Simon Brown, but he believes saving early will have the greatest impact on your future funds.

How do I save?

Thulisile Nkomo at NFB Private Wealth Management concurs, saying saving needs to start from day one.

Step two is planning what money goes where, based on priorities, and not spending more than you earn.

If you’ve just started working and most of your disposable income goes towards rent, petrol, groceries and recreational use, spending might be the issue, says Redelinghuys. He challenges someone in this situation to take R200 out of their monthly spending.

He adds that if you spend R50 less on daily expenses like food, your cellphone bill and going out, you can save R200 a month.

Saving for a purpose

For something like a holiday or a music festival, keep a separate banking account, says Redelinghuys.

He suggests getting “a side hustle” for a particular goal. Make money from a hobby.

Short- vs long-term

Have long- and short-term savings options, Nkomo adds.

Short-term savings are for small items, like a TV, a pair of headsets or a laptop. This can be invested in a money-market account, where there’s low risk and easy access.

Investing for a house or a really expensive holiday may take five to 10 years to accumulate the money needed.

The whole point of saving for a rainy day or for the long term is to keep money where it’s difficult to access.

The easier it is to access on demand, the easier it will be to spend.

Where do I save?

There are many options available, but it’s your responsibility to research and educate yourself on those best suited for your needs, says Nkomo.

On her suggestion, a tax-free savings account (TFSA) or a unit trust are the best ways to save.

A TFSA enables you to save and benefit from the growth of your savings, investments and dividends, as no taxes are deducted.

Brown agrees, saying the key is to start putting your money in accounts that will help your money grow.

“Start with ETFs (exchange-traded funds) and TFSAs. They are simple, cheap and generate returns much quicker.”

An ETF is basically an index fund that tracks commodities, bonds and asset baskets. It can be bought or accessed via the JSE. As an index it aims to provide investors with a benchmark return at a lower cost, says Brown.

Next week: How to invest