You will need a safety net when adulting gets real.
You’re in your 20s and you have achieved some level of financial freedom so living your best life feels like the natural thing to do, right? Correct. But, being financially responsible and smart will save you a lot of stress and pressure in the long run.
Khwezi Jackson is an Investment Consultant at 10X Investments whose personal financial management journey started when he bought his first share in 2016. Since then, he’s earned a degree in business administration and a postgraduate diploma in financial planning. Below Khwezi shares five common money mistakes to avoid now that will help you set yourself up for success later on in life, when the streets stop calling.
1 Delaying saving for retirement
When it comes to investing, the earlier you start, the more time your money has to grow. If you leave your money invested over time, the magical power of compound interest will grow your money for you and you will earn interest on the interest you have already earned in a virtuous cycle of growth.
Unfortunately, many young people are already missing out on the magic of compound interest as shown by the 10X Retirement Reality Report 2020. When asked why they don’t save for retirement, 42% of people aged 16 to 24 and 21% of people aged 24 to 35 said saving for retirement was not a priority for them at this stage of their lives.
You alone are responsible for the type of retirement you will have, so why not make the necessary preparations now to ensure your ‘golden years’ are actually golden. Use free tools such as a retirement savings calculator to set out some goals and start the process today.
2 Not setting up an emergency fund
To help you prepare for life’s curveballs, be it retrenchment or a flat car battery, it’s best to have an emergency fund. Don't think of it as an investment but rather as a savings plan. Investing builds wealth and saving will secure it. The general rule of thumb is to have at least three to six months of your take-home pay saved in a low-fee money market fund or income fund for rainy days.
3 Letting your money control you
Think of a budget as a roadmap. Essentially, it will guide you to where your money should go and what to do instead of allowing your money to control you. Start by listing your incoming money, your outgoing money and your objectives. Then create a plan around your spending and refine this into a strategy that empowers you to reach your goals.
4 Not educating and informing yourself
The saying “knowledge is power” is especially relevant when it comes to personal finances. Even if your parents have taught you the basics of handling your finances responsibly, there is always more to learn and so many resources at our fingertips. Learn about saving and investing and inform yourself about taxes and fees. Remaining ignorant about key financial levers will make you vulnerable to being exploited or making poor decisions.
5 Trying to keep up with the Joneses
Many people, especially us younger folk, easily fall prey to peer pressure, which sees us waste our money on flashy cars, meals in fancy restaurants and other nice-to-haves. Usually this is done in the hopes it will make us look successful to our peers. But nothing looks as successful as success itself and burning all your money on flash purchases is not going to help you get there.
The most dangerous part of “trying to keep up with the Joneses” is that you may start relying on your credit cards, store accounts and general loans. The next thing you know, you’re in a debt spiral that can take a long time to recover from. Make an effort to live within your means. It’s the best gift you could ever give yourself.
One of the greatest advantages we have as young people is that we have time on our side. We might think that living our best lives comes at the expense of making smarter decisions but the truth is, we can do both. If we manage our money more wisely, we won't have to end up living in regret later on.
