SA’s youth urged to start saving and investing early in the COVID-19 crisis

While statistically, COVID-19 poses a far lesser risk to younger people from a health perspective; however from a financial perspective, it is the young working class who will be the hardest hit by the COVID-19-fuelled economic crisis. With future job losses projected to be as high as seven million in South Africa, this generation could be facing an economy with an unemployment rate as high as 50%.

It is against this forbidding economic background, that Ray Mhere, Head of Momentum Investments Distribution, is urging the youth of South Africa to protect themselves financially by saving and investing from as early as possible, and remaining invested despite short-term market volatility and uncertainty. “With the world changing at such a rapid pace, maintaining a sense of security can be a challenge, but young people can take this time to plan and prepare for their future.”

While the idea of saving and investing can seem daunting at first for up-and-coming young professionals, Mhere says that there’s no reason to be intimidated. “Most people know that saving for the future is important, but many are either too scared or overwhelmed to get started. The truth is there’s nothing to be intimidated by, especially if you start small and follow simple, tried-and-tested steps to achieving your long-term financial goals,” says Mhere, who lists the following five tips for saving and investing.

1. Pay off your debt
Simply put, if you’re paying more interest on your debt than you could earn on an investment, you're losing money. The first step in planning for future financial success is therefore usually to eliminate – or at least minimise – existing debt. This applies particularly to short-term credit like retail accounts that generally have higher rates of interest attached to them, but if you’re able to, it may also be worthwhile to speed up the payments on your longer-term debt like the bond on your house.

2. Track your spending
Start tracking your daily spending in order to truly understand where your money is going. By doing this, you will very quickly see which of your spending habits are based on your wants and which are based on your needs. It’s usually in the “want” category that we can reduce our spending on things such as regularly eating out. In fact, take this time during lockdown to identify what pre-lockdown expenses you have not had and have managed to do without during lockdown. This could be a good starting point to reducing your spending.

3. Build up an emergency fund
No matter how well you plan, life happens, and you need to be able to handle an unexpected financial blow from time to time. To ensure you aren’t left out of pocket by urgent car repairs, insurance excess, or an unexpected specialist appointment, it is recommended to save about three months’ salary in an easily-accessible “rainy-day fund”. COVID-19 has certainly emphasized the importance of an emergency fund; it’s not only about plugging a hole created by unexpected expenses but also to replace your income if, for some reason, you are unable to earn one.

4. Select the investment that best matches your goals first
Once you’ve paid off any debt and identified ways to curb your spending, why not turn the tables and start making the power of compounding interest work in your favour by investing your savings. When choosing your investment solutions, it’s important to focus on your individual needs and goals, rather than seeking to outperform an arbitrary benchmark or peer group. This outcomes-based investment approach will ensure that you are able to meet your day-to-day and long-term real life needs and aspirations. Momentum Investments’ fund range places the investor’s needs at the centre of the investment process.

5. Stay invested
The case for staying invested has proved to be especially strong during times of financial market uncertainty and high volatility. This is because volatile markets increase the risk of buying and selling at the wrong time. By trying to time the market, investors therefore risk missing top performing days because it is often intuitive to buy when prices are low, but difficult or even impossible to correctly predict the best time to invest.