Discover the essential financial lessons I learned in my 20s, from investing and saving to budgeting and understanding credit. Equip yourself with the knowledge to make informed financial decisions and avoid common pitfalls.
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Navigating the world of finances in your early 20s can be both exciting and stressful at the same time. Your first few years of working are filled with new opportunities, experiences, and lots of challenges. If you do not have a strong foundation for financial stability, it could lead to making very costly mistakes. Reflecting on my journey, here are a few financial lessons I wish I had known earlier.
Learning about investing
Investing has always been seen as something that is only reserved for rich people. You need to have hundreds and thousands of rands to be able to invest and be rewarded. That is the general perception among the youth. It is very important to educate yourself about investing by reading books and doing research on reputable websites. Starting small is a solid way to build a portfolio without taking big risks straight away. A great way to look at it is that the earlier you start to invest, the more time there will be for your money to grow, and the quicker you will reach your financial goals.
Savings, savings, savings
Savings can be helpful for everything from travelling, education, or starting your own business. It can also be a great financial cushion for unexpected emergencies like car repair or medical care. A recent study by Nedbank revealed that 8% of young people in South Africa save monthly, while 7% save weekly. However, 78% expressed a need for better financial information and guidance. It is very easy to get into the habit of mindless spending, a little online shopping here, a few takeaways per week there, and when you check your bank statement, you’ve easily spent thousands of rands. This does not mean that you should restrict yourself from luxuries; however, planning your expenses is very important. This brings us to my next point, the B word, Budgeting.
Budgeting is a MUST
It is very important to keep track of all the money that you earn and the details of the money that you spend. Budgeting will make you quickly determine areas that need improvement and help you make informed decisions to optimise your financial resources. You do not need a fancy Excel spreadsheet with formulas to create a good budget. Two columns, with income vs. expenses, are enough to track your money. This helps you gain control over your finances and makes you feel more confident about your financial decisions. The Youth Generational Wealth conducted a survey that indicates that more than 50% of young South Africans lack basic knowledge about building a stable financial future, with fewer than 30% maintaining a formal monthly budget. This is important to keep in mind as we transition from being predominantly spenders to becoming effective savers.
Qualifying for credit doesn’t mean you can afford credit
It is very tempting to open a clothing shop or furniture shop account when you receive your first salary or stipend. Your credit qualification is based on your income, credit score, and financial history, and not necessarily your affordability. It is very important to know and understand this distinction. This is why budgeting is crucial because it enables you to calculate your debt-to-income ratio. If the ratio is high, then that is an indicator that most of your income is going towards debt.
Reading Financial Books
Financial books provide insight into financial concepts and help you to avoid common financial pitfalls. By understanding the principles and strategies, you will make more informed decisions. Research from the University of Sussex shows that reading reduces stress levels by 68% and improves decision-making capabilities significantly. This will lead to a healthier relationship with money and overall personal growth. It is also very motivating and inspiring to read the success stories of financial experts. The human brain processes information differently when reading books compared to scrolling through social media.
The lessons I learned in my early 20s were very valuable and an eye-opener. I now understand the importance of investments, savings, budgeting and reading financial books. It is not possible to avoid every mistake, but it is possible to equip yourself with the necessary knowledge to make well-informed financial decisions.
* Kuselo is a procurement systems administrator at VWSA.
PERSONAL FINANCE