What lessons do you wish you had learned before your first paycheque?
1. Save 20% of your income
If you save 20% of your salary from your first paycheque you will get used to living on this amount. It gets much harder to find money to save when you are used to spending your full salary.
· Get the taxman to help you save: Join your company’s retirement plan and if they don’t offer one, take out a retirement annuity.
· Have emergency savings: Never rely on a credit card as your emergency savings. Build up three to six months of savings as an emergency buffer.
· Prepare for leaving home: If you are still living at home, calculate how much rent would cost you and save that in addition to your 20% saving. In this way you are learning to live on a budget that you can sustain when you leave home and you can use these savings to buy furniture and pay a deposit when you do move into your own place.
2. Wealth is about what you spend, not what you earn
Your wealth will be determined by how much you flitter away on irrelevant items so avoid temptation. Peer pressure may cause you to buy something you don’t need; simply to fit in, or stand out. If you save upfront and have no debt, then you can spend on luxuries.
3. Understand good and bad debt
Never go into debt to buy clothes or other short-term needs like a mobile phone. Interest destroys wealth and debt can affect your future credit record when you really need it, like buying your first home. Never buy furniture on credit – it is very expensive so rather eat off a cardboard box for a few months and save upfront.
If you plan on borrowing money for a car, calculate the repayments and insurance costs and start saving that amount each month towards a deposit. You will also get used to living on a budget that includes car repayments and insurance. This way you will know if you can really afford it. Buy the least expensive car, not the one you think you can afford – too much car debt will prevent you from being able to afford a home.
4. Protect your future income:
Right now your future income is your biggest asset. Make sure you have insurance in place to replace your income if you are unable to work.
5. Invest in yourself
No one can ever take away your knowledge so continuously invest in you; sign up for training programmes, and find a mentor. Never stop learning.
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