Secure your finances for the future
Here are top tips to help you
A YOUNG READER RECENTLY SENT IN A REQUEST “I’ve just started my first job and I belong to my company’s retirement fund and medical aid scheme. What else should I be doing to plan for my future, bearing in mind I’m not earning much yet and I have student loans to repay?” It’s a sensible and mature question: the earlier you start planning for your financial future, the more successful you’re likely to be. Your Money asked Charné van der Walt from Lemons into Lemonade Financial Planners how to lay a strong foundation for future financial freedom. MAKE SURE YOU’RE CONTRIBUTING ENOUGH Your monthly contribution to your company retirement fund should be at least 15% of your income before tax.
When young people start working they often choose the minimum contribution. But contributing 15% or more over a 40- to 45-year period will ensure a comfortable retirement.
If your contribution now is less than 15%, ask a financial adviser to help you work out how much you should be saving.
Don’t be discouraged if you can’t afford it immediately – make it a goal for when you next get a salary increase. START AN EMERGENCY FUND A goal for an emergency fund could be to save R5 000 to R10 000 over the next four years. Keep your hands off it and use it only when there’s a crisis. Set yourself a realistic target of, say, R300 a month.
When you’ve reached your goal, that R300 a month can be put to good use elsewhere, for instance saving for a holiday or a deposit for a home or vehicle. DON’T LET DEBT GET OUT OF HAND You might be itching to buy your first car but if you’re paying off a student loan, don’t get into more debt.
Pay off your existing debt as soon as possible and don’t fall behind on your monthly repayments – this will result in a negative credit record and make it quite difficult to get a loan in future for a car or a house. POLICIES Ask your employer about group coverage. Sometimes people take out life or disability insurance because they’re unaware they already have it through their company. If your employer doesn’t offer it, consider a policy with an affordable premium. For example, see what kind of coverage you could get for R150 a month.
Disability cover means if you’re ever injured or ill and unable to work – either temporarily or permanently – you won’t be left without an income. Should you die, life cover will pay for your funeral and any student debt. Just make sure you don’t buy a policy with a 10% annual premium increase. Rather opt for a 5% increase. STAY ON TOP OF YOUR TAX South Africans aren’t required to file tax returns if they earn less than R350 000 a year but filing one anyway will make your life a lot easier in the long run.
The moment you decide to work overseas or expect a policy to pay out, even if you earn less than R350 000, Sars is likely to request your tax information.
So if you haven’t filed tax returns, you could struggle to retrieve old information and even be fined for late filing. BEWARE OF COMMERCIAL DEBT Young people often buy furniture and electronics on credit. If you manage to pay it off within the interest-free period, it makes financial sense. But if you take longer to pay off items, they could end up costing you a lot more.
Moral of the story: don’t buy things you can’t afford, no matter how tempting it might be.