Johannesburg – We are all lectured to be responsible with our first salaries, but the reality is most of us don’t listen. Instead, we chart our own path to misery out of fleeting moments of excitement, not realising the consequences could last years.
Phrases such as “put money away for a rain day”, “have an emergency fund” and “it's never too early to start saving” and the like bore us, the bad decisions peak our interest more.
“We are young”, “we have time”, “we will do it tomorrow” - we tell ourselves.
Thus, we lay the foundations for future distress because we refused to take responsibility from day one.
For those of us who are older youth (fast approaching 35), we have heard phrases such as these (and likely ignored them until it was or may have been a little late), but for younger youth fresh out of university, it may be new or likely the furthest thought in your mind.
The reality is, it is good advice, and if followed, it could determine the path a young person's life takes, a life of strife and grief, or a greener financially rewarding life grounded in being financially prude.
This of course may mean skipping that R6000 sweat shirt or sneakers, or skipping spending R2000 per bottle on alcohol on an evening out.
Charnel Collins, the chief executive of National Debt Advisors, says young people must make sound financial management decisions from day one during these tough economic times.
“Now more than ever, young South Africans need to manage their finances as best as they possibly can and know exactly where their hard-earned money is going,” says Collins.
In 2022, FNB data showed that the country's average middle-income earners spent up to 80% of their salary within five days of getting paid.
In other words, a R30 000 monthly salary paid into your bank account on the 25th of every month, is nearly entirely spent by the 30th – just five days later.
That means eight out of every 10 people would have spent at least R24 000 of that money, leaving just R6 000 for the remaining three weeks of the month.
Another agency, the consumer analytics and research company Eighty20, also said the average middle class South African spent two thirds of their salary servicing debt.
On the same R30000 net salary notion, that means roughly R20000 of that money could be spent servicing debt: think home loans/rent, vehicle loans, credit cards, clothing accounts, cellphone contracts and other debts.
“Young South Africans need to empower themselves with financial know-how in order to have a better relationship with money for a secure financial future.
“Youth month is a good reminder of the importance of creating set patterns that will lead to better decision making in the long run,” said Collins.
Developing good money habits must start from a young age and the youth need to be financially educated from the onset.
“It’s important to educate people from a very young age about the pitfalls of credit agreements and for them to adopt healthy money habits early on – from their very first salary.
“While earning your first salary is an exciting moment for all new job starters, the deductions often come as a surprise to first-time employees,” said Collins.
Young people are warned that they will be showered with all sorts of credit offers as they start their journeys as young adults earning salaries, but it is important not to fall in the trap, buying too quickly, things you cannot afford.
Collins says as much as that black credit card (or whichever colour it may arrive in) can be a useful tool to build ones credit profile, there is a thin line between healthy use of it and it becoming a costly burden.
Collins says young people must get property financial advice from day one, work with a budget, and stick to the budget.
“When budgeting, you know exactly where all your money is going, and also how to save effectively and leave enough money for unexpected expenses and emergencies,” she said.
TOP TIPS
Budget: Draw up a realistic budget based on your net income and stick to it.
Set financial goals: Identify what you wish to achieve financially.
Saving and investing: Determine the amount you will need to invest for each goal and for how long.
Track spending: By analysing your spending patterns, you can easily identify some of the habits that need to be done in order to make your money last longer.
Spend wisely: Buy what you can afford, not what you can borrow.
Pay off debts: The repo rate hike means that consumers will be paying more on their monthly debt repayments. The sooner your debt is paid off, the better.
The 50/30/20 rule
50 - Collins explains that 50% of a young person's budget must be spent on needs such as rent, food, transport and living expenses such as lights and water.
30 - A further 30% can be dedicated to a young person's desires, or wants, such as entertainment, dining out and other hobbies.
20 - The remaining 20% can be dedicated to savings and investments, or repaying any debt, such as repaying a young person’s NSFAS debt for example.
“Understanding your priorities and budgeting according to those needs is what makes this budgeting rule so efficient,” Collins explained.
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