By: Khanya Modipa andThapelo Tsiu
Navigating the maze of personal finance can be daunting, especially for young professionals just entering the workforce.
Young professionals should not rely solely on their monthly salaries or even their planned career development to create the future they want. Building that future begins with ongoing financial education to equip yourself with all the knowledge and tools you need, and then follow the wealth creation path you have set with discipline and tenacity.
Here are some valuable insights and guidance to navigate personal finance as a young professional.
1. Set long-term financial goals. It is important to set long-term financial goals, specifically, mentioning the often neglected aspect of retirement planning. Contrary to popular belief among young people, retirement planning isn't a far-off concern. It should be a part of immediate financial priorities. The sooner you start planning, the more secure and comfortable your retirement will be.'
2. Master the tax game. Understanding taxation is another cornerstone of financial wellness. Young professionals should not only be aware of how to save on taxes, but also actively use all existing tax incentives to build their future wealth, particularly those related to retirement savings. Investments in qualifying pension funds or retirement annuities offer significant tax benefits, making it an essential avenue to explore, and there are many other tax structures that can help ensure you pay South African Revenue Services (Sars) only what you have to – so it’s always a worthwhile investment to consult with a tax expert.
3. Build a financial buffer with an emergency fund. Aim to save at least three to six months’ worth of your monthly salary in a liquid account. Importantly, the objective here isn't to earn maximum interest – it’s crucial to have quick access to these funds in cases of emergencies, such as a loss of employment or other income.
4. Develop an investment mindset. Have an investment mindset. Don't chase quick wins or relying on hearsay, instead, undertake comprehensive research to understand various investment options and align them with your financial goals. Setting up regular automated investment deposits was also an effective way to grow your financial portfolio consistently.
5. Make the most of debt, carefully. Learn, understand and manage debt. Contrary to common perception, not all debt is bad. When managed wisely, it can serve as a financial lever. Using a credit card responsibly can build a good credit score, which is vital for acquiring larger loans like car and home loans in future. However, becoming over-indebted or losing sight of the fact that an interest rate hike can add significantly to your debt repayments, which is something you should always keep in mind when spending on credit.
The most valuable money management lessons are:
- Watch out for lifestyle creep, which can hinder your financial goals.
- Be aware of the impact of Black tax and set clear boundaries for dependent family members.
- Preserve your pension fund when changing jobs.
- Establish a comprehensive financial plan with a professional planner.
- Leverage technology to manage your money more efficiently.
* Modipa, is a fitness and wellness entrepreneur, and Tsiu, is the senior manager of financial wellness and education at Nedbank.