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Your finances in your 20s

How to not do what I did.

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I don’t know about you, but for me, my 20s were a confusing time during which, as far as I can remember, I made a series of terrible decisions, spent too much money, and consumed too much alcohol (on the plus side, I didn’t get any tattoos).

Because I hope for better for you, gentle reader, this week, we’re going to talk about some ways that you can ensure that your 20s are, at least, a financial success, although I can promise you nothing on the relationship and career fronts.

By way of preface, in your 20s, your finances are typically less complex than they will be later on. You might be in varsity, earning a bit from a part-time job and living with your parents or in res, or you might by in your first job, earning your first real salary and living in your first flat (alone, or with flatmates). Whatever the specifics, I’m going to assume that you have some kind of income, and a set of expenses and some debt (maybe a car loan or a student loan), but nothing too complex – no offshore accounts or child maintenance orders or anything like that. If you’re part of a typical family, your parents probably didn’t do enough to teach you how to manage your finances, so it’s important that you take time to educate yourself on what to do, starting with reading this article!

1. Build good habits now

Although you probably don’t have a lot of money, you definitely have enough to begin practicing good financial hygiene. First of all, make a habit of keeping track of your money. Write up a budget at the beginning of each month (try these templates, or the free software tools available here and here), and then keep track of everything you spend (use Excel to track your daily spending, or try ExpenZa to automate things). If you get in the habit of doing this now, while your finances are straightforward, you’ll be much better prepared to manage your money when things get complicated later on.

You should also develop the habit of saving. I know that when you’re very young, and especially when you’re in varsity, saving seems impossible. But no matter how little you earn, you can afford to save, even if it’s just a few hundred rand a month. One suggestion: set a goal of saving up enough money to cover six months of expenses. This is a great idea if you’re in varsity, because it can take a while to find a job and having a savings buffer can be handy. It’s also something you should definitely do if you are working full time.

2. Get used to living within your means

Your 20s is usually the time when you start taking on your first debts. In particular, you’ll probably buy a car, take out a student loan, or get a credit card. It’s hugely tempting to make bad decisions here – getting a car that’s way more expensive than you need, or using your credit card to make up the difference between your incomings and your outgoings. Don’t do it! Now is NOT the time to be building debt. Get used to spending less than you earn and saving the difference.

This can be harder than it sounds (trust me). In your 20s, you’re 100% in charge of your own spending for the first time, and perhaps surrounded by people at work or varsity who have nicer things than you. Buying fancy clothes or expensive electronics can be very tempting, especially when you’re armed with your shiny new credit card or store card. Learning to control yourself and spend wisely now, when you’re young, will save you a huge amount of suffering down the line.

3. Think about your risks, and manage them

When you’re young and healthy, it can feel unnatural to consider things like disability insurance. However, you really should have a good think over the risks you face. Even though you’re young and healthy, you should almost certainly have some insurance – car insurance if you have a vehicle, a medical aid plan (even if you’re healthy, accidents happen and you need to be covered), and possibly a disability plan. Talk it over with someone you trust – your parents, or a financial adviser perhaps – and make sure that you are safeguarding your future.

4. Educate yourself and start investing

Now is a great time to learn about investing – you have free time that will vanish as your career and family obligations grow, and you are still flexible enough to learn new habits and styles. So make investment a hobby. Read some good books on the topic (Benjamin Graham’s The Intelligent Investor is a classic starting point), go to any free lectures or courses you can find on the topic, practice trading with the JSE’s virtual trading account, and start investing in unit trusts, ETFs, or even individual shares. The earlier you start, and the longer you invest, the better for your retirement.

Also remember that you need to start investing for retirement the month you start your first job. Do not delay! Time is a major factor in how successful your retirement savings plan will be. Start early, and reap the rewards when you can retire at 50.

Next week: your finances in your 30s.

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