Twenty-four years since graduating from university, it is a somewhat challenging task to look back at my twenty-two year old self and dispense financial advice to the woman I was then. Standing on the precipice of a legal career, the proud beneficiary of a sizeable student loan and earning a pittance as an articled clerk, it is relatively easy to be critical of past financial decisions. While nothing beats experience when it comes to learning how to manage one’s personal finances, there are a number of truths that my twenty-two year old self would need to be reminded of:
Live frugally while you are still used to living frugally
Patience is a virtue. Wealth is built slowly and deliberately, and comprises so much more than your first big pay cheque. Be patient for financial success. As a recent graduate, you are used to living a frugal lifestyle, being creative with your budget and living well within your meagre means. My advice is to continue living frugally even after your first proper pay cheque. There are some financial matters that you will need to prioritise before spending your first salary, and these need to take precedence over everything else.
Insure your greatest asset
As a young, qualified professional with no real net worth, your greatest asset is your future earning potential, and this needs to be insured. The greatest gift you can give to your future self is to take out an income protection benefit while you are young and healthy. In the face of an illness, accident or disability – whether temporary or permanent – your income will be protected until you reach age 65, ensuring that you don’t become a financial burden on somebody else.
Start saving with your first pay cheque
Although saving with your first salary may seem impossible, your future self will thank you for taking this all-important step. More important than the quantum you choose to invest is the habit-forming action of having a debit order transact off your account every month. Implementing the debit order from your first salary means you won’t miss what you never had. More significantly, you will learn early on the satisfaction of having denied yourself short-term pleasures in return for a little lump sum of cash.
Attack debt aggressively
The cost of tertiary education is sizeable and it is likely that you will be burdened with some student debt as you embark on your career. Endeavour to settle this as quickly as possible by ramping up your repayments. Although debt should be avoided, as a young professional you need to be reliably and cost-effectively mobile. Buying a second-hand car that is still under motor plan is a good option. Having said that, beware of how your vehicle financing agreement is structured, stay away from balloon payments and negotiate everything.
Negotiate everything from your salary package to your property purchase, and be sure to enter your negotiations armed with knowledge. If you are negotiating your remuneration, make sure you understand the market value of your skills, qualifications and experience. When purchasing property, research what other properties have been sold for in the area and negotiate from a position of knowledge. Similarly, negotiate the attorneys’ fees, bank charges and interest rates.
Build a good credit rating
Your credit rating will be an influencing factor every time you apply for financing, loans or credit, and it is vital that you keep your credit image untainted. Any negative rating is a red flag to any financial institution and will impact both on your ability to borrow money and the price of your debt.
Stay on the right side of SARS
Understand how your taxes work and then pay your taxes on time, every time. Make sure you take full advantage of the tax deductions available to you, such as the contributions to your retirement fund. Register with SARS e-Filing and learn to submit your own tax returns.
Stalk yourself online
Today, almost everyone has an online presence and it is up to you to ensure that your social media profile is a reputable one. The transition from student to young professional will necessitate a tidy-up of your various social media accounts to ensure that they accurately reflect who you profess to be in your curriculum vitae. Thankfully, this is a problem that my 22-year old self did not have.
Be a friend
As a young professional earning a good income, you will no doubt be asked by friends to lend them money. Lending money to others can test the limits of any friendship, and the kindest advice for your friendship is to simply avoid it. The anger, resentment and tension that comes hand-in-hand with unpaid debt between friends is rarely worth it.
When money is tight, it is tempting to settle for cheaper substitutes and buying on-the-cheap can eventually become a habit. Rather discipline yourself at the outset to buy quality products that are designed to last the distance, even if it means waiting longer. The cost of having to continuously replace the inferior product will inevitably be greater than if you had saved up to buy a good quality product in the first place. It is also a worthwhile lesson in delayed gratification.
You will probably be starting your professional career alongside your friends and fellow university graduates. Depending on qualifications and career choices, salaries may range from the entry-level salaries of articled clerks to the more generous packages offered to qualified software developers. There is great temptation at this point to jump onto the hamster wheel of working hard, earning money and accumulating material possessions as a measure of wealth. My advice is to hold yourself to a different standard of success. Find the balance between growing your personal wealth and accumulating memories. Invest in experiences.
Become a master at something
Whether it is bookkeeping or beekeeping, make yourself the expert at your chosen profession. Become the go-to person in your particular area of expertise; the sought-after master of your trade who stands out from the throng of ‘also-qualifieds’. Develop a unique, marketable skill and be sure to understand your economic value.
Have a small, intimate wedding with people who really matter and then stay married
Weddings and divorces can set any couple back financially. Going into debt in order to pay for an expensive wedding is one of the biggest mistakes young couples can make. Similarly, even the most amicable divorce costs money and inevitably leaves both partners poorer for having gone their separate ways. Make carefully considered choices regarding your life partner, and then work hard at making it work.
Earn while you sleep
If you are selling your time as a means of generating an income, you will always be limited by the number of hours in a day. Putting mechanisms in place to earn an annuity income will allow you greater freedom with your time and will accelerate your wealth-building. Seek clever ways to monetise your expertise so as to generate ongoing income that is not time-dependent.
Do small things
Whether in the form of your time, money or expertise, giving to those less fortunate than yourself is enormously fulfilling and adds purpose to your life. As Mother Teresa so beautifully said, ‘We can do no great things – only small things with great love.’
Have a wonderful evening!