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YOUNG PROFESSIONALS: 12 TIPS TO ENSURE FINANCIAL SUCCESS
You’ve just qualified as a young doctor, lawyer, accountant or other professional. Starting off in the world of work is exciting, but it can also be scary – you’re on your own now and need to make some important decisions, especially financial ones. Bev van Nijkerk, segment specialist for Sanlam Young Professional Market, provides some tips on making the choices that will ensure a good start on the road to achieving financial success.
- Accept who you are. You are the Y-generation, and you think differently to your parents and the generations before them. The world is a different place to when they were young, so what worked for them financially, may not work for you. You will have to work out your own strategies to ensure that you are financially ready for any curveballs life might throw at you.
- Realise that you are the ‘sandwich generation’. You won’t only have to make provision for your own retirement, but will in all likelihood also have to look after your parents, who will be living longer than their parents did.
- Understand that you’ll fall into a high tax bracket. With your qualifications, you are likely to be in a top income bracket. You’ll therefore be paying a lot of tax. Find out what your tax table looks like, and how much will be deducted each month.
- Draw up a monthly budget. This is common sense, but not many people actually do it. Your budget is not a judgement, it is just telling you where your money is going. If you have a credit card, remember that your spending limit is not a target – the money doesn’t belong to you and you’ll have to repay it, with substantial interest.
- Save up for those big-ticket items. Everyone knows they need to save, but we are living in an era of instant gratification, and it’s very tempting to buy that fancy car you’ve been eyeing the moment you get your first pay check. It’s crucial to draw up a short-, medium- and long-term savings plan and stick to it.
- Set money aside for emergencies. Life’s little surprises happen, and it is advisable to have some money saved up – in an accessible money-market account, for example – to prevent you having to borrow money when they do occur.
- Start saving for retirement from day one of work. This is probably the last thing on your financial radar, but it really is important. There are relatively painless ways to handle your future retirement, but it means starting young. The later you leave it, the more you’ll have to pay each month to get a decent pension when you retire. The main factors here are time and compounding, where the interest on your investment helps it to grow at an accelerated rate over time.
- Don’t (ever) cash in your pension if you change jobs. As a member of the Y-generation, you are likely to change jobs up to 10 times throughout your career. For this reason, you should preferably have your own retirement annuity (RA) which will be unaffected should you change jobs.
- Protect your ability to earn an income. This is your biggest asset. What will happen if you become disabled at the age of 25? There are various types of insurance which can be used to cover this and other uncontrollable risks, such as sickness, injury, incapacity and even death.
- Form a relationship with a financial adviser. The world of finance and investments is very complex these days, and a professional financial adviser will have access to information you won’t have (not even on the internet). Make sure you choose an adviser who understands your needs and goals, and who can walk a long road with you to make sure you achieve your dreams.
- Read, read, read. You don’t have to become an expert, but educate yourself about the world of business, finance and investments. Understand how the markets work, and the financial products you have bought. Don’t buy anything without doing your own research first.
- Draw up a will. Again, this is likely to be furthest from your mind when you are in your twenties. But if do you happen to die, it can become very messy for your family if you die intestate.
As a young professional, you have one very powerful advantage when it comes to securing your financial future – your youth. “Make it work for you while you are starting out. Although these tips may seem daunting, if you follow them, you’ll be setting up an important financial roadmap which will benefit you for many years to come,” says van Nijkerk.