Embarking on the journey towards financial freedom can be intimidating for a young adult who most likely had no financial education at school. Here are some tips for newbies in the workplace on how to start planning so that their salary is put to good use.
1. Examine your attitude toward money and finances
The way you were brought up, what you had and didn’t have, what you had to work for or not, what you were taught about money, has an enormous influence on how you feel about it as an adult and as a result how you spend and save. It may be inhibiting you without you even realising it. Start with a self-examination on your relationship with money:
- What messages did you hear about money when you grew up? Importantly, how do these messages serve you now?
- How do you currently use money – to reward? To hoard? To measure your worth? To create security?
- What are your personal values in terms of sharing and giving?
- How comfortable are you making financial decisions?
2. Draw up a budget
The only way you can have a true picture of what is coming in and going out is by drafting a budget. This is the cornerstone of financial planning. Include everything you can think of to see what your cash flow is.
- What is your total income?
- What are your total expenses?
- Do you own any assets?
- Do you owe others?
- What do you spend on?
Follow the 50-30-20 percent rule: at least 20% of your monthly income should go towards savings, 50% towards necessities and 30% towards discretionary items. Setting up a regular, automatic transfer will keep your goals on track and save you time
3. Identify your long-term objectives
This is not about ‘being rich’ – it’s about growing wealth and clarifying your long-term personal goals. What do you want to achieve? Do you want to upskill or study further? Are you planning to start and raise a family? Do you want to own a home? Do you want to travel? Do you want to secure assets abroad? Have you considered how and where you would like to retire? Is philanthropy important to you? It helps to be specific with these goals, for example: “I want to save X for a deposit on a home in Cape Town in five years’ time.” or “I want to put away X every month from now, to afford to travel when I retire at the age of 65.”
If you value financial freedom, your goal should be to amass enough money to cover these needs, while setting aside money for a comfortable retirement.
4. Move forward with intention
Only when you have a clear picture and understanding of where you currently are and where you want to be can you start the journey. If you have decided that you want to buy your first home in five years’ time, that decision and deadline will help you to move with intention, saying no to unnecessary spending that may thwart that plan. There will be many opportunities to spend and deviate from your plan – but unless they are going to help you build your wealth, you need to be super focused to be able to ignore them. Don’t however, forget to set aside money to simply enjoy life!
5. Speak to a financial planner or wealth manager
Where do you want your money to go? How much do you want to invest, and for how long? How will that affect the value of your money? These are questions that qualified, experienced wealth specialists can help you answer, structuring a long-term investment strategy that will maximise growth and protect your investments from unnecessary risks.