My Money / 13 June 2019, 5:00pm / Danelle van Heerde
For some of us, the thought of coming up with a financial plan is somewhat like going to the dentist: we delay for as long as we can, often assuming that we can play for time.
The reality, though, is that forewarned is forearmed and facing.
Here are some key financial decisions to consider when you're young:
1. Saving for retirement. Ideally, you should start saving money towards your retirement as soon as you get your first pay cheque. When you're young, you can usually afford to invest more aggressively because time is on your side. That means ample opportunity for growth. Depending on the savings vehicle you choose, you're also likely to enjoy some tax benefits.
If you're savvy with your savings plan, you can literally buy yourself an earlier retirement. Sure, it may not sound too appealing now, but when you're 65 and ready to start a new phase of life, you’ll probably think differently. Moreover, delaying saving means you will lose out on tax benefits linked to certain savings vehicles, and you're likely to have to contribute much more to catch up.
2. Wills and life insurance. Getting a will drafted and taking out life insurance are two critical financial considerations which younger people often leave for later, but you'll do well not to see a will as an unnecessary administrative exercise; or to see life insurance as a grudge purchase.
After all, anyone who owns an asset or has any debt at all should have a will - regardless of how much money or possessions you have.
Dying without a will means you'll have no say over how your assets should be distributed to your family and how your debt (if you owned a car or a property of any sort) should be managed. Similarly, without life insurance, particularly if you're a breadwinner in your family or have children, your family may be left in financial dire straits should you die. Buying life cover at a younger age also means that your premiums will tend to be lower, and that you'll have fewer exclusions.
3. Protecting your ability to earn an income. Many of us tend to feel invincible when we're in our twenties and early thirties, yet it's almost counter-intuitive, given that our lifestyles often present the highest risk when we're young. Consider the fact that a young person's single biggest risk is their inability to earn an income. If you’re 25 and have more than 40 earning years ahead of you, what will happen if you suddenly become disabled? Add to the mix a scenario of study loans, other debt, marriage and children, and the importance of taking out cover to protect your income becomes obvious.
When you're adequately covered and you lose your ability to earn an income, your benefits kick in and "pay" you a monthly or lump sum amount - so you can focus on taking care of yourself and your physical and emotional well-being.
4. Extra TLC if you get seriously sick. Young people do tend to be healthier, so it’s no surprise someone in his or her twenties doesn't think about extra protection for illness.
However, if you consider more serious illnesses and know you have a family history of cancer, for example, it may be worth investing in serious illness cover sooner rather than later.
Danelle van Heerde is the head of advice tools and processes at Sanlam.