Learning how to manage your finances is not something we’re all taught from a young age. Many of us only discover the need and importance of saving, being debt-free or managing money, once we’re older in our lives.
Being a young adult means that many facets of the adult world are now starting to become a reality. Whether that means getting a job, moving out, finding out your income gets taxed, or figuring out all the other “adulting” experiences in our way.
Learning how to manage money as a young adult can be one of the most beneficial things you can do. It helps prevent bad spending habits when you’re older, while learning right from the start, all the good habits you need to be financially independent, while still young.
Keep a Budget
Having a budget is the first step you take when you are learning how to manage you money. It gives you a full breakdown of how much money you actually have, where you’re spending it and how much you’re spending.
The best way to track your spending would be to ask for receipts after every purchase, so that you have a trustworthy source for exactly how much money you spent. You should also take note of every R2, R5, R10 or whatever small amount you used.
You can divide your budget to have the follow categories:
- Essentials: These are expenses you must have, like rent, travel money, etc.
- Development: Any money spent towards personal wellbeing like gym or sport.
- Entertainment: Money spent to enjoy life like going out with friends.
- Savings: Always put money aside towards savings. This is money you never touch.
Never spend more than you have. This may seem like an obvious thing but don’t take it for granted. Debt can creep up on you quickly, so best to avoid picking it up unnecessarily.
Build Your Savings
The COVID pandemic is just one of the proofs that we never know what is going to happen to us or our livelihood. The amount of jobs lost during the pandemic, across industries, just shows that we can never be certain of an income.
At the same time, saving money isn’t limited to emergencies. We won’t be guaranteed an income our whole lives and that is why pension funds and retirement funds are so important.
- Emergency Funds: Save towards emergency funds. This is money put away if anything happens. Medical emergency, loss of income, paying rent or buying groceries after losing income.
- Savings Goals: Save money towards future goals. This could be saving for a car, saving for rental deposit, or anything you want that you can’t afford immediately. This will help you build a habit of saving for bigger purchases.
Remember, saving money isn’t about the money. It’s about having the money to build the kind of life and lifestyle you want.
Manage Debts Early
During those early days or even if you’re already on the Young Adult track, it is important to control your debt from the first day. Debt isn’t always a bad thing, however if managed incorrectly, it could be a burden weighing you down for the rest of life.
Once you start making money, you’ll find a lot of attractive offers for things you want like a cell phone, clothes, gadgets, or whatever else stores can sell to us.
For example, having a clothing account can help you build a good credit record (which you need if you want to rent, buy a car, etc.), but if you don’t pay it back, may end up getting you blacklisted.
- Contracts: Things like cell phone contracts make buying a good phone far more affordable. That also means you are stuck in a contract for the next 24 months and so is your money.
- Try to save that same amount of money for the contract towards a phone instead.
- Clothing Accounts: Open a clothing account and make a small purchase you can pay off quickly. Afterward, use cash rather than the account to prevent debt.
- Instalment: Sometimes it is best to save up rather than paying instalments. Save money towards that big-screen TV rather than pay monthly instalments.
Financial Education for Financial Freedom
At the end of the day, you are responsible for your finances. So read up on all the ways you can save money, build money, and understand money. After all, it makes the world go round.
Spend 5 to 10 minutes a day learning new terms or reading an article related to managing your finances. Use social media to look for reputable people in the finance industry if you have to.
Your financial state is your responsibility, so take it seriously.
United African Stokvel is always looking for ways to help our members. This blog is intended to help our members think about their finances in a different way. This information is not intended to be a substitute for a financial advisor, you should consult with a financial advisor before relying on this information.