Regardless of economic climate, start your financial journey this Youth Month

Published Jun 27, 2023


Creating wealth in the face of an economic downturn is a challenge, especially for young people who are still exploring ways to save, invest, and take the next step on their financial journeys. According to Liberty’s Investment team, you can always upgrade your financial situation, regardless of uncontrollable external factors – you just need a bit more planning.

“We hope that this Youth Month, we can help young people take control of their finances and set exciting new personal goals – because a difficult economic climate doesn’t mean your finances should stagnate,” said Luvhani Makoni, Senior Specialist: Business Manager, Retail Investment Proposition Management at Liberty Group.

“Young people have a distinct advantage – from compound interest over time to lower insurance premiums – but they need to start their wealth journey immediately,” said Brandon Naidoo, Lead Specialist: Investment Proposition, Retail Investment Proposition Management at Liberty Group.

Forget budgets, let’s talk spending plans

Everybody knows they must budget to save money, but what’s more important is making informed decisions about how you spend. The 50/30/20 rule is helpful, even in economic recessions – with 50% of your take-home pay going to needs, 30% to wants, and 20% to savings and investments. That’s a good way of planning month-to-month, but a spending plan also requires you to think about your future spending in 5, 10, or 20 years.

“The way you spend now will affect your future spending habits, which is why you want to start planning for the big purchases right away,” said Makoni.

Affordable now, affordable later

Speaking of big-ticket items, a pitfall that many young people face when deciding to buy a new home or car is the overall cost of the payments – both now and in the future. “Not just the monthly fee, but what happens to the instalments in the event of a major interest rate hike, for example. If the interest rates suddenly increase by 3 percent, for example, ask yourself, is the payment still affordable?” said Naidoo.

For car purchases, always be conscious of balloon payments, the cost of a vehicle's maintenance, and make sure you know if you’re paying at a fixed or variable rate.

Pay off the debt, build up the nest egg: You can do both

“A lot of people ask us, should I be paying off my debt, or should I be saving? I always say both,” said Makoni. Wealth creation is a delicate balance, she explains, and even if you have a large amount of debt – student loans, for example. It’s also important to save. Even small amounts saved and invested can become huge over time, with compound interest being of particular value to young people. By starting to save early, you effectively earn interest on your interest, which, over years, even decades, is a major return for the person saving.

When it comes to paying off debt, Naidoo said that one option is to try “the snowball method.” Start by paying off your smallest debt as quickly as possible. When that debt is resolved, you can use the money that was being used to pay that off on the next smallest debt, and so on. This gains momentum quickly, and once you’ve started, you don’t have to greatly adjust your spending plans to keep it going.

Love to travel? You can adjust expenses if you plan ahead

Those of us with international travel aspirations always groan when the value of the rand takes a tumble. But with a bit of preparation, you can keep your holiday budget at a reasonable level, even at 18 rand to the dollar. Naidoo explains that year on year, international travellers should be investing in foreign currency or purchasing foreign currency regularly throughout the year.

“Save in the currency of the country where you want to holiday, and that can prevent you from feeling the effects of the rand devaluing or a sudden currency shock. Then you can dollar-cost average your travel budget over time,” said Naidoo.

Educate yourselves to avoid the pitfalls

“There are so many financial education resources available, yet many people are willing to invest in products and services that they hear about at a braai from unreliable sources,” said Naidoo.

“Not just young people, many South Africans fall prey to pyramid schemes or other bad investments where they lose large amounts of their hard-earned money,” said Makoni.

The pair warns that anything that sounds too good to be true most certainly is and that you should always question investments with overly high guaranteed returns over short periods of time.

“It's best to reach out to a registered financial adviser who can answer all these questions in relation to your particular circumstances. Sit down, have a chat. You'll be glad you did,” said Makoni.