You’re only young once. Become money-wise now

FOLLOWING the principles of compound interest, young people have the benefit of time, which, if they consistently invest it in the right things today, will generate good outcomes in the future.

“There is no better time than now, during National Youth Month, to encourage young people to become financially literate, in order to empower them, prepare them for adulthood and instil good financial habits as asoon as possible, to ensure a better, more prosperous future for themselves and their families,” says John Manyike, head of financial education at Old Mutual.

South Africa is a youthful country, with over a third of our population under the age of 35. With around 66% of them being unemployed, it becomes even more important to encourage those that are fortunate enough to be employed to be financially literate and to look at the benefits of effective money management, savings and investing.

Financially literacy must not be underestimated. Not only will the youth benefit from financial knowledge that contributes to their personal financial security, but their financial wisdom will also play a critical role in improving our nation’s savings levels.

With a better savings culture, our government will be able to invest in infrastructure projects that will create jobs for other young people and result in a positive ripple effect for the economy and long-term benefits for future generations.

When you have just started working, it may feel strange to be thinking about the financial building blocks you will need during your life and even about retirement. After all, shouldn’t this time be spent on enjoyment, buying dream cars, travelling, and all the good things that money can buy? That may be, but it is also the ideal time to use your youth to your benefit and begin investing in your future.

MAKE WEALTH CREATION A PRIORITY

Unemployed South African youngsters joining the labour market late are in a race against time to close the asset accumulation gap. Entrepreneurship for the youth is critical and should take centre stage instead of formal employment. We need inspired young people to boost the economy by being employers instead of being employees.

Everyone’s financial situation is different, but the steps to having the money you need as you pass through the different life stages are simple.

COMPOUND INTEREST IS KEY

Compound interest is an essential concept to understand when managing your finances.

It can help you earn a higher return on your savings and investments. Think about compound interest like what happens when the “snowball effect” occurs.

A snowball starts small, but the more snow that’s added, the bigger it gets. As it grows, it becomes bigger at a faster rate. Compound interest is interest earned on your capital and on accumulated interest. In other words, you’re earning interest on interest.

OTHER SIMPLE STEPS TO FOLLOW

1. Start and stick to a budget

This is the best way to be the boss of your money, by keeping track of your means and meeting your financial obligations and goals. Apply the 50/30/20 rule: 50% of your income on essentials, 30% on what you want, and 20% on savings, investments, and retirement funding.

2. Pay yourself first

Ensuring that money for long and short-term savings is taken off your income before you begin spending will prevent the urge to buy that pair of new sneakers. Left alone, these funds will benefit from the magic of compound interest and automatically grow.

Part of investing in yourself is controlling spending. Using digital banking apps and the available financial tools on the web can help ensure that you don’t spend what you don’t have.

3. Enquire about a retirement annuity (RA)

Speak to a financial adviser about an RA. Acquiring an RA means committing yourself to funds that you can only access after you reach the age of 55. The advantages of RAs are that they are tax-efficient - you can deduct your contributions from your taxable income.

4. Protect yourself and your assets

The best time to buy life insurance is when you are young. Premiums are primarily based on age, so the younger you buy a policy, the more coverage you can afford and the cheaper your premiums.

Add wisdom to your freedom For most, your 20s and early 30s are the most exciting formative years of your life. They are about finding yourself, enjoying freedom, learning, buying what you want and hopefully building a prosperous and sustainable career. With a bit of additional financial wisdom thrown into the mix, this knowledge could be the very platform that could enable you to build your financial legacy, and following a financial plan could see you accumulating wealth, securing a happy retirement, and living your exceptional life, Manyike says. | Supplied by Old Mutual