6 tips to manage your money better as a young professional

• 1. Don’t wait to start saving

  Save as much as you can, as early as you can. By starting small, you not only build discipline and an efficient savings habit; you’ll benefit from compound interest to earn far more on these early investments, which can prove invaluable in building your long-term wealth.

• 2. Avoid unnecessary debt

  Before taking on any debt to fund your lifestyle purchases, consider how the asset you want to finance adds real value to your life. It’s far better to save until you have enough money to purchase the item in cash, as this will avoid the high-interest loans of credit facilities. And remember, just because you are offered debt doesn’t mean you should take it.

• 3. Be disciplined

  Realising the importance of money management and a save-first mindset takes a lot of discipline. Ensure expenses never exceed your income, and form a detailed understanding of how you spend your money each month. Be especially mindful of those small but frequent purchases that punctuate the month. You’ll be surprised at how much these can add up to each month, which is money you could have saved. Avoid those instant gratification purchases to favour expenditure that can nurture and generate income generation.

• 4. The 50/30/20 rule

  The 50/30/20 rule is a basic budget principle and guideline for how your net monthly income should be distributed. 50% of it should cover your fixed expenses; 30% should cover your living expenses; and 20% should be saved.

• 5. Define your goals through your life plan

  Knowing what your goals are will help you crystallise a financial plan of what you need to do to fund them. This isn’t just around income milestones. Financial planning for young adults should also include investing in a diverse investment portfolio that will support these goals at various stages in your life. This culminates in retirement planning, where Investec Wealth Manager Tebello Rabele reminds us that only 10% of people can afford to retire, while just 3% can afford to retire and maintain their lifestyle.

  Understand where you are in your wealth journey and use your budget as a tool to guide you to where you need to be in the future.

• 6. Start an emergency fund

  Financial prudence in the early years of your career and your life increases your personal capacity to weather future financial burdens. Perhaps some of these are already on the horizon: a family, education, a home. Others can appear with little warning at all, like medical bills, repairs to your car or a family emergency. 

  Create an emergency fund that can cushion the financial blow of these unexpected future costs. Young professionals with additional income streams and side hustles you should save as much of this money as possible for this reserve fund.