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.
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.
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:
Income | Expenses | Need/Want | ||
R | R | N/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:
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.
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):
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.
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 goals | Long-term goals |
Pay off credit card debt – over 6 months | Save for retirement – monthly from age 25 to 65 |
Build up an emergency savings fund – over 2 years | Buy a house – paying off extra amounts with year-end bonuses and tax back from tax returns |
Save for a holiday – over 6 months | Home 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:
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.
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.
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