According to Zanele Jafta, Provincial General Manager (Consumer Market) at Nedbank Financial Planning, the problem is that when we are young, we usually have very different priorities in life to when we’re older and, arguably, wiser. And this often leads us to make poor financial decisions in the now, that come back to haunt us in the future.
Here are some common mistakes young people make:
Money mistake #1:
She says the first of these money mistakes to avoid in your youth is failing to budget. ‘While it may seem boring and restrictive, budgeting is actually really easy,’ Jafta explains, ‘and it’s an excellent habit to develop because it gives you a clear view of exactly how much money you get from all your sources of income, where it is going every month, and how much you are left to enjoy right now.’
If you’re not a spreadsheets kind of person, there are plenty of free budgeting applications to help you set up your personal budget quickly and easily. There are even bank accounts designed to help you put your budget into practice and make sure you stay on track with your spending.
Money mistake #2:
The second money management mistake to avoid is failing to save. ‘It may seem impossible to save when you’re first starting out, but even a few rands saved every month can quickly grow into a healthy sum of money to fund a trip or put down a deposit on a car or house,’ Jafta says, ‘not to mention that saving is one of the best habits you can ever develop, and it will serve you well throughout your life.’
Money mistake #3:
Money mistake number three is neglecting to set aside cash for an unforeseen emergency expense. Jafta explains that while most of us tend to feel bulletproof when we’re young, life always happens – and that usually means we need money in a hurry. ‘Whether you need to fix a car, replace an appliance, or help out with an unexpected family issue, chances are you’re going to need money in a hurry at some point,’ she explains, ‘and an emergency savings fund means you won’t have to get yourself into debt to pay for that emergency.’
She points out that there are many savings accounts that are perfect for emergency funds, because they give you solid interest growth while still allowing you to access your money quickly if you need to.
Money mistake #4
Money mistake number four that Zanele Jafta says all young income earners should avoid is to see credit cards as a source of free money. ‘When you manage it well, a credit card can be a very useful tool,’ she explains, ‘but a credit card is not free money, and if you aren’t repaying the full amount you owe every month, you can quickly land yourself in debt – which can make it very difficult to balance that budget you’re trying so hard to maintain.’
Money mistake #5:
The final money management mistake that needs to be avoided when you’re young is putting off saving for your retirement.
‘When it comes to growing your money, time is your biggest ally,’ Jafta explains, ‘so by starting to invest for your retirement when you’re young, even a little bit of money put away every month has the time to grow into a substantial nest egg.’
While being financially responsible may seem like a chore when you’re young, it is one of the best things you can do for yourself and will ensure that you avoid making poor decisions that could impact you negatively for the rest of your life.
‘If you’re not sure that you have the knowledge and skills needed to make good money choices, partnering with a financial planner or adviser is an excellent strategy,’ Jafta concludes, ‘and the small investment you make in the services of a qualified and accredited financial professional now, will not only ensure you avoid most money mistakes, but it will also deliver massive positive financial returns for the rest of your life.’