Bayport Blog

No personal budget and other money mistakes young people make

The saying goes you’re never too old to learn.
The opposite is also true: you are never too young to learn about, and do, the right money things to achieve financial wellness.

June is Youth Month in South Africa. Young people are the future of a country, and realising that potential requires national policies and government interventions. On a far more personal scale, however, as young people we can shape our own futures by taking charge of our financial health.

A good place to start, is by avoiding these 10 money mistakes many young people make.

1. Not having a personal budget.
   Too often we believe that budgets are for older people with lots of money. Not true. Budgets are for people who want to achieve financial goals, who want to be in charge of their money and who want to make smart money choices. Keep your personal budget simple – a list of all the money that comes in (yes, even the “loan” or tank of petrol from your parents) and all your expenses. Be sure to keep track of your expenses so you know where your money goes. With this knowledge you can plan, and make decisions to spend your money better.
   
   
2.  Not distinguishing between needs and wants.
   Most of us want more stuff than what we need. Needs are literally the things necessary for your survival and basic wellbeing: enough to eat, a roof over your head, the means to get to work. Designer labels, however, are wants and so are nights out in expensive clubs and bars. Wants swallow your cash, and can easily land you in debt.
   
   
3. Not realising that money is all about choices.
   Choosing to buy one thing instead of another, or not buying something on credit but rather saving until you can afford it, is all about opportunity cost. Spending money on one thing, means turning your back on the opportunity to spend it on something else. It is always taking a moment to consider the impact of your choices before you spend.
   
   
4. Not saving.
   Saving can sound very boring – until you start doing it and experience the kick you get out of seeing your money grow. Getting into a habit is easier the younger you are, so start saving from the moment you start earning. The best way to save is by paying yourself first; this means saving before you start spending, instead of trying to save what you have left over. Also make a deal with yourself to save a percentage of every increase, bonus, incentive or overtime payment.
   
   
5. Diving into debt.
   When you earn a salary, you can get credit. In fact, credit providers will soon send you all kinds of irresistible offers. Don’t fall into the trap. Just because you can afford debt loans, doesn’t mean you should dive into it. Debt is for building assets, such as improving your education or buying a home. It is not for clothes and groceries and concert tickets.
   
   
6. Not understanding credit.
   One of the biggest mistakes young people make, is believing that the more accounts you have, the better your credit record and score will be. You don’t need a clothing account to improve your credit score. If you are paying rent and have a cellphone account, you already have a credit profile.
   
   
7. Thinking investing can wait.
   When you are 20, retirement is the furthest thing from your mind. Do yourself a favour and give it just enough thought to set up a simple investment account and a debit order to save automatically every month. Being young, you have one of the greatest financial benefits on your side: time for compound interest to accumulate.
   
   
8. Going for flash.
   You only live once, right, and you are only young once. Correct, but that is no excuse for spending money you don’t have. Many young people buy cars they can’t actually afford to impress family and friends (and girls). It might earn you street cred and cool points, but nothing else. Remember also that an expensive car is expensive to run – tyres, parts and services cost a lot.
   
   
9. Not building up an emergency fund.
   In every life, things can go wrong. Your car breaks down, the geyser bursts, you need medical care that is not covered by your insurance. You need an emergency fund to cover these occurrences so you don’t have to take out expensive loans.
   
   
10. Cashing out investments.
    It is very tempting to cash out an investment or even your pension fund if you need money, because you think you have enough time to make it up. What you can never make up, however, is the compound interest benefit you lose. Even a “once-in-a-lifetime” event, like a wedding, is not worth sacrificing your long-term savings for.
    
    

The good news is that you don’t have to figure the money stuff out on your own. There are countless online resources, such as Bayport’s Information Centre where you can get all the information and tools you need to avoid money mistakes and learn how to build financial wellness.