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Think you are too young to live debt-free?

4 steps to get you out of debt and enjoying a financially independent life and retirement.

We were all there once. You are young, you have only recently started building your career and there are many, many things to think about. Retirement planning certainly isn’t one of your priorities.

I could expound on the virtues of compound interest, which Albert Einstein called the “eighth wonder of the world” and use a spreadsheet to explain that those who start saving early for retirement will always be ahead of those who start late in life. But for now, retirement still feels like a million years away.

With that in mind, and to get you in the habit of saving, consider focusing on another goal in the short term: that of paying off your debts.

As a 20-something, you may find yourself with a rapidly increasing debt burden. Payments for cars, a place to stay, food, clothing and general living expenses are no doubt exceeding your monthly income and you may soon find yourself with quite a bit of debt to service.

But here is the secret: If you pay only the minimum amount required on your monthly debt, you can expect to stay in debt for a very, very long time. The same compound interest that we mentioned above will work against you to increase your total outstanding debt, keeping you in this cycle of debt for the rest of your life.

But it certainly isn’t a cause for concern. Follow these steps to get yourself out of debt as soon as possible. Then, in the words of the financial guru Dave Ramsey, you can “Live like no one else!”.

1. Budget

The art of budgeting is one that anyone can master, and it is a very powerful tool on the road to financial independence.

Assign a role to every rand in your pocket and track your expenses carefully. You will soon realise that money spent without a plan disappears at an alarmingly fast rate and soon grows to a significant portion of your disposable income.

With a budget, you can reign in your unnecessary spending and free up some extra cash to spend on your debt.

2. Identify your most expensive debts

Paying extra on the debt with the highest cost will immediately save you money and will help you to build momentum. Identify the costliest debt, a short-term loan or credit card, and deposit any additional saved money into that account.

By seeing how much interest you save and how much faster you can pay off a debt, you will soon get addicted to this habit of paying off your debt.

3. Find an additional source of income

It may sound difficult, but if you give yourself ample time and you plan well, it can be very rewarding to find an additional source of income.

In our experience, people who make a few extra rands, how small the amount may be, pay their debts off much quicker than those who do not. The practice of finding additional sources of income is also a great way to get you out of your comfort zone, which will surely stand you in good stead in your career.

4. Find the help of a CFP

There is absolutely no harm in finding a specialist that can help you get started on this journey. On the contrary, a CERTIFIED FINANCIAL PLANNER® is trained to help you identify your blind spots, assist you with finding ways of dealing with your debt and best plan for your future.

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ADVISOR PROFILE

Wouter Fourie

Ascor® Independent Wealth Managers

COMMENTS   7

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Honestly it is hard to live little when you are trying to payoff couple of debts. I am in my mid 20’s and I was forced to take a large amount of loan for my sister who is in university, I was hesitant but the bank gave me a short term so I have been paying high installments. It has been hard honestly, I am trying to get online jobs since I have full time job, now and then I try to make a budget but it is a bit pointless because I already know beforehand the outcome. It is just the loan ‘major’ leak of money that is draining me.

Respect for taking on that loan. That is an incredible sacrifice. I hope your sister and the rest of your family appreciate this.

Mid 20’s is an extremely tough time financially, living debt-free is almost impossible unless your career is exceptional. For the average Joe, without parents with money, its just not possible. Food, rent, studies, car instalments, fuel – then also now they say we need to pay more into debt, or have an FA, save for retirement, etc. How, where?

Mr. Schreuder, with all due respect, this article makes out as if it is so simple and is not relevant to 99% of this country’s younger population.

Mr. Fourie*

theBrus, it is very admirable that you are supporting your sister. but as you get older in life you will realize that it is wise not to take on debt to help other people.

By all means, live with in your means and give your surplus to helping out family and close friends. If you can’t help with money, help in other ways.

A word of advice. Live well below your means and you’ll be dept free before you know it. It’s really as simple as that. Biggest obstacle will be friends and family with perceptions and comments. Second little piece of advice. When you’re debt free, your spending and saving habits should continue in the same manner it did before until such time that you can really just sit back and see how your money works for you without you having to lift a finger. Find your own pace in doing this. Everyone is different, so don’t compare yourself with others. Stay focused. It’s a marathon, not a race.

Spot On theBrus…its not as simple as it sounds and a major concern i see in this article of “Find an additional source of income” without clarity is quite dangerous as there are an increasing amount of get rich quick schemes out there (trading, pyramid schemes etc.)targeting desperate and indebted people. Tumisang we are in the same boat save, save, save and live below your means your reward for your sacrifice will surely come.

the biggest shortfall today is education, times has chanced, 30/40 ago you could work get a company pension have a additional retirement policy at Old Mutual or Sanlam, and you were set. Today its a totally different story.

I think that financial education should be much more and in-depth at school level. Websites like this one and money wise forums should be mandatory. High school children should be able to interact with entrepreneurs, financial advisors, and annalists. this should not be a school subject, but more of a technology interactive social media medium.

This way they can get much more involved in the economic world, on a more user friendly way, without the actual subject of “economics”. The youth today do not understand the concept of hard work, saving, and planning. School kids drive GTI’s, students drive BMW’s. A totally spoiled generation.

Education and get the youth involved in economic discussions, on their own turf, social media forums. Just like this article, and all the comments relating thereafter. They must get involved and talked about it.

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