Your twenties are an exciting time, as you wrap up your studies, embark on your career and perhaps even start a family. But as a woman, it is especially important that you begin saving and investing towards your future now, especially in today’s tough economic times.
Citadel Advisory Partner Anelisa Mti says that with the cost of living on the rise, it is vital that women become proactive about managing their personal finances and saving as early as possible if they are to achieve their financial goals, whether these be studying further, travelling, saving for a deposit on a home or even saving towards a comfortable retirement.
“Being disciplined about saving is especially important for women, because as a woman you are expected to outlive men by as much as a decade, which means that your retirement savings may need to last you an extra ten years. And with increasing food and utility prices already putting pressure on budgets, ‘catching up’ on your savings later could be incredibly difficult,” she notes.
“The good news, however, is that by getting used to looking after your finances now, you could potentially add millions to your retirement nest egg by taking advantage of the benefits of time and compound interest on your investments.”
To guide first-time savers on their journey, she offers five simple tips for women to begin maximising their savings:
1. Budget, budget, budget
Your first and most important financial step is to create a detailed budget that will help you to understand how much you are spending, and how much of a margin you have to begin saving instead.
Begin by noting what your actual salary is after tax, and then create a detailed list of your expenses, including your rent, utilities, groceries, phone bill and travel expenses. You may like to jot down an estimate the first time, and then review and refine these numbers at the end of month based on what you actually spent.
Then, once you have put a list of your expenses together, look for ways to cut back and save instead.
2. Build up your emergency reserves
Next, continue your savings journey by putting some money aside in a separate savings or call account for rainy days.
Aim to put away at least three to six months’ income in an emergency fund that you can easily access without having to pay on credit when faced with big expenses such as a sick pet, burst tyres or new mobile phone.
This will help you to save money on interest repayments should the unexpected happen, allowing you to keep channelling money into growing your wealth instead.
3. Avoid the temptation to splurge on a fancy car
While the high of earning your first salary means that it is natural to want to treat yourself, avoid the temptation to overspend or take on excessive debt, especially on an asset such as a car which will lose its value over time.
Look to your budget to guide you in terms of affordability, remembering that by minimising your car repayments, you may be able to make a much larger deposit on a meaningful asset such as a home, or maximise your savings for building your long-term wealth instead.
4. Keep whittling away at your debt
Excessive levels of debt will prevent you from reaching your true savings potential, and if the interest rate being charged on your debt is higher than you would be earning on an investment, you will actually be saving more by paying back your debt more quickly.
Look at the interest rates charged on your debt and prioritise repaying expensive short-term debt such as credit cards and store accounts, before turning to less expensive long-term debt such as a student loan.
5. Put your money to work
Reach your financial goals by investing and putting your money to work.
Many women in their twenties prefer a more discretionary investment vehicle such as a tax-free savings account or unit trust for medium to long-term goals such as a deposit on a home or child’s education.
Meanwhile, contributions towards retirement savings vehicles such as retirement annuities offer the benefit of being tax deductible, lessening the amount of tax paid on your income. However, you may face a heavy tax penalty if you withdraw from these savings before the age of 55 years.
You will also need to choose your underlying assets carefully, namely how much of your money to invest in equities, property, bonds or cash-related instruments, dependent on how much investment risk you are willing to take with your money.
With an overwhelming number of choices available to you, however, your best bet is to consult a qualified financial adviser to advise you on choosing the right investments for your individual needs, and implementing a sound financial strategy that will help you to achieve a bright financial future.