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!”.
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.