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How young adults in the Covid-19 era can get their savings back on track

28 July 2021 Jaco Prinsloo, Certified Financial Adviser at Alexander Forbes
Jaco Prinsloo, Certified Financial Adviser at Alexander Forbes

Jaco Prinsloo, Certified Financial Adviser at Alexander Forbes

With fewer job opportunities and higher living costs, young adults today face more than their fair share of financial challenges, often forcing them to put essential life decisions on hold — from buying a first home to starting a family.

But there is a light at the end of the tunnel, and time is on your side. Here are five tips to help you get your finances back on track after the Covid-19 pandemic:

Tip #1: Short-term gratification can lead to long-term pain

Instant gratification is hard to resist. But it’s crucial to balance your wants with your needs, especially during uncertain times like these. Consider putting a budget together to determine how much you are earning and how much you are spending. Part of your budget will determine what essential things you have to pay for, like housing, transport, and school fees. Compare this against your discretionary spending where you could get by without having fast food takeout, the newest smartphone and holidays. Depending on your situation, consider moving to a smaller home or selling a second car. While it may seem painful to you and the family, preventative actions like this could mean you are not forced into making harder decisions later.

Tip #2: Debt free = financial freedom

Because of the lockdowns, many young adults were forced to stay at home and move their socialising online. This allowed them to save on nights out on the town, transport, holidays and gym memberships. The lockdowns showed us that we can save if we are forced to. Now that the lockdowns have been lifted, don't let the positive changes go to waste. Use your savings to get your finances back on track by paying off debt. You can automate your finances by using an app like 22Seven to track your expenses and set up automatic repayments on all your accounts. As you scale back on other expenses, pay off student loans or credit card debts. All of this extra money can now go straight into your savings.

Tip #3: Pay yourself first — even if it's just a few rand each month

Once you have your monthly budget and started paying off your debt, make savings and investing your number one priority. But with the current economic crisis and lockdowns, is it good to invest now? I don't know what the stock market will do, but I do know young adults have time on their side, and what the stock market does in the next six months does not matter. Every single 20-year period in history has shown positive gains in the stock market. So, if you’re 30 years old and investing for the next 30 years, don't worry about the short-term market fluctuations. Stick to your long-term investment goals and save as much as you can every month.

Tip #4: Lifestyle changes

For most of us, our biggest monthly expense is our house or where we stay. If you have lost your income or realised that you no longer can afford your home, you need to consider where you can save most. If you can no longer afford rent, talk to your landlord or your bank. You may be able to negotiate your rent. And if that does not work, consider moving back in with your parents. It might be the last thing you want to do, but it’s a whole lot better than having debt you can't repay and a bad credit record.

Tip #5: Financial literacy is key

Even before the lockdown, most young adults struggled with and felt stressed about their personal finances. This is because most do not have a financial plan. Sooner or later in your life, you will have to make crucial decisions about your finances. So you’d better get ready. Get clued up on savings, budgeting, loans, mortgages, and retirement savings and ensure your future financial well-being.

Right now, the world is uncertain, and there's a lot you can't control, but you can take charge of how much you know about finances, and you can prepare for better days ahead. Invest time in finding a financial adviser who is the right fit for you and, together, develop a plan. Commit to a budget, make saving a habit, and manage risks and returns. While the pandemic continues to impact the economy and dominate the headlines, you can be on your way to a healthier financial future with these five tips.

Quick Polls

QUESTION

South Africa’s Financial Sector Conduct Authority (FSCA) has the power to raise revenues by issuing administrative penalties and fines against non-compliant financial services providers, with this money flowing back to the Treasury… Does this, in your view, create a regulatory / government conflict of interest?

ANSWER

Absolutely, as conflicted as it gets
Maybe, I’m on the fence on this
No, the FSCA can do no wrong
The guilty must pay
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