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A beginner’s financial guide for young professionals

Author
Stian De Witt
Date
6 October 2023
7 min read

Young professionals have the power and the time to take control of their financial future if they get started as soon as possible. If you see yourself as a young professional, now is the time to adopt smart money habits and make the most of your youth. It will set the stage for a financially secure life.

We offer young professionals tips and insights to help them kickstart their journey towards financial wellness. By explaining how to establish savings habits for beginners, budget effectively and plan for retirement, tailored to their unique needs. While also providing practical advice and encouragement on managing money wisely today, for a secure tomorrow.

Embracing a savings culture

A survey entitled 2021 Millennial and Gen Z Survey a call for accountability and action revealed that 4 in 10 millennials said they feel stressed all or most of the time. About two-thirds of respondents said that they worried about their personal financial situations often with their main concern being their families’ welfare. It was also noted as a main cause of stress for millennials. Saving for the short term and the long term is the first step to achieving financial freedom and lowering the burden of financial stress on young professionals.

The key to saving successfully is starting young, with small amounts, because you still have three to four decades of time ahead of you to prepare for both your immediate and future needs. This is easily achieved by setting up automatic transfers to a 32-day call account and some type of investment account like an annuity or a tax-free savings account.

Avoid living with a hole in your pocket

If you, like many others, feel like you are living with a hole in your pocket, the first step to take is to create a comprehensive budget. It may take a couple of months to track and document all your expenses, but it needs to be done if you are going to take control of your finances. Here is a sample of a budget to help you get started:

IncomeExpenses Need/Want
 R RN/W
Salary Rent  
Side business income Water and lights  
  Vehicle finance (10%)  
  Petrol & Toll  
  Medical aid  
  Car & House Insurances  
  Life insurance  
  Cellphone  
  Groceries  
  Debt repayment (10%)  
  Retirement Savings (10-15%)  
  Bank fees  
  Entertainment  
  Emergency savings (10%)  
  General savings  
  Donations/Tithing (10%)  
Total Total 

If you have a proper budget in place, you will always know where your money is going. It is important to understand how much you have coming in and going out of your account every month. Here are some budgeting tips for millennials to help you set up and stick to your budget:

  • Live within your means: if you can’t afford to pay cash for something, don’t take it on credit. Rather take your time, save up for it and avoid paying interest.
  • Avoid buying on impulse: it is always better to shop around and sleep on your decision to buy something that costs a lot of money.
  • Every month will be different: you will need to review your budget every month to keep up with new and ad hoc expenses. You also need some open lines in your budget for ad hoc expenses.
  • Use the 50/20/30 rule as a guide: 50% should go towards your “needs and want” like food, rent and enjoyment, 10-20% should go towards paying off debt and 30% can go towards your securing your future through savings, an emergency fund build up and giving.
  • Set goals: for example, paying off your credit card in three months or having a certain amount saved in your emergency fund by the end of the year.

If you are living with a hole in your pocket, you run the risk of depleting your money before the month is over. No one likes living from pay cheque to pay cheque. Budgeting can help you take complete control of your money.

Making your age count for retirement

The younger you are when you start saving for retirement, the more you will benefit from compound interest. Also, the younger you start, the less you need to save towards your retirement. The money you are saving will earn interest, and that interest will earn interest – and that is the magic of compound interest.

Let's look at some examples (these are only averages and assume retirement at 65, inflation-linked salary increases, and an average rate of investment growth):

  • If you start saving at age 25 – you will need to contribute 17% of your salary towards retirement for your full working career.
  • If you start saving at age 30 – you will need to contribute 22% of your salary towards retirement for your full working career.
  • If you start saving at age 40 – you will need to contribute 42% of your salary towards retirement for your full working career.
  • If you start saving at age 45 – you will need to contribute 59% of your salary towards retirement for your full working career.

As you can see from these calculations, when you have time on your side, saving for retirement need not be a financial burden. It requires discipline to avoid cashing in on your savings during your working career and perseverance to see it through. However, the youth advantage in retirement planning is undeniable.

Navigating financial goals

As a young professional, you must have carefully crafted financial goals. These goals need to cover your short- and long-term needs and wants. Let’s look at some examples of financial goals:

Short-term goalsLong-term goals
Pay off credit card debt – over 6 monthsSave for retirement – monthly from age 25 to 65
Build up an emergency savings fund – over 2 yearsBuy a house – paying off extra amounts with year-end bonuses and tax back from tax returns
Save for a holiday – over 6 monthsHome improvements – building a garden cottage for rental income

When you are setting your financial goals, think about the future you want. That will inform the kind of goals you set for yourself. Also, make sure your goals are SMART (specific, measurable, achievable, realistic and time-based) so that you are clear on what you want to achieve through your goals. Here are two examples of SMART financial goals:

  • I will pay off my R5 000 credit card debt in 10 months by paying a minimum of R500 into this account each month. I will achieve this by cutting my entertainment budget and not using my credit card during this time, or
  • I will save R50 000 over 5 years for a down payment on my future house. I will achieve this by putting R800 into a savings account monthly.

Setting SMART financial goals motivates responsible financial behaviour because you have first considered your budget, and then set realistic goals that can be achieved. Having something concrete to work towards will give you financial confidence, especially if you achieve your goals.

Investing in knowledge: financial literacy resources

If you want to achieve financial freedom as a young professional, you need to empower yourself with financial literacy. The more you learn about the financial world, the easier it will be to make good financial decisions for your future. You could start by setting aside time in your diary to read (to understand) a financial article every week. You can sign up for finance-related newsletters, listen to podcasts or watch free webinars to learn more. LinkedIn is also a great resource for developing your financial literacy.

Knowledge, as they say, is power. The more you learn, the more you broaden your horizons. If you don’t enjoy reading or self-learning, you could get a financial advisor to partner with you through your life. Most financial advisors are well-versed in explaining complex financial concepts in plain language. Learning about your own financial journey with the guidance of your advisor will also help you increase your financial literacy.


T&Cs apply. NMG Consultants and Actuaries (Pty) LTD is an authorised financial services provider FSP 12968

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