It is said that youth is wasted on the young. The ten years between turning twenty and progressing into your thirties are mostly filled with adventure, independence and joy. It’s the journey between being under the care of your parents, and progressing into full-blown adulthood.
Millennials and Zoomers (Generation Z) are having kids, getting married and buying a home much later than their predecessors. Edwin Theron from digital insurer Sanlam Indie says that as a result, these young adults are sometimes missing the opportunity to initiate certain financial commitments in their twenties, which would directly (and positively) impact their lives as early as their forties.
“The understandable desire amongst millennials for increased independence and purposeful work means that many young people of today are saving and investing for short-term goals, but neglecting to consider their longer term financial aspirations,” says Theron.
He proposes three decisions that should be made as early as possible:
1. Start saving for retirement
Retirement is often overlooked when you're just starting out. You’re more concerned about cash flow for the upcoming weekend and less worried about your accommodation as an eighty year old. Theron stresses that it’s never too early to start saving for retirement. The earlier you start, the more time your nest egg has to grow. “A good method for starting your savings and investment journey is to allocate a percentage of your income to this fund – a non-negotiable portion of your income that is removed as it comes in,” says Theron.
In some cases, employers might match your retirement contributions, which is another great way to amplify your savings efforts.
2. Look out for those closest to you
There are many arguments for taking out income protection as a young adult – the greatest of which is the reduced price of the premium when you’re young and healthy. Young people tend to think of physical assets first – buying a car or house, but when first starting out, your earning potential is actually your greatest asset, and this is what needs to be protected with the necessary income protection insurance. People underestimate the likelihood of disability because they only consider permanent disabilities, but the experience shows that temporary disability is much more common and still has a significant financial impact if not insured against.
Theron says that in South Africa, many twenty-somethings are already responsible for the financial wellbeing of their parents and sometimes even their extended families. “Income protection is a guaranteed way of making sure your loved ones aren’t burdened, and are still provided for should you unexpectedly become unable to work.”
3. Build a good credit score
Working on establishing a good credit score in your youth is important when it comes to applying for loans to purchase a home or vehicle. Credit providers require insight into how you’ve managed debt in the past in order to grant you credit in the future, and this is often a stumbling block for young people in their first jobs. It can take a few years to establish a good credit score. The easiest way to start is by taking out a retail, cellular or store credit account. Choose an interest-free facility that is within your means and ensure that you settle monies owing timeously.
Theron says that being in a position to make any of the above moves means that you can count yourself amongst the lucky few. “The reality for many South Africans is that saving, investing and insuring can be incredibly difficult when you’re trying to make ends meet – especially considering the challenges faced over the past two years.” He says that even before investing, taking a good look at your spending and eliminating bad debt is a good place to start your journey to financial freedom.