Bayport Blog

Why millennials are not planning for their financial future

Many millennials are struggling to put money aside to secure their financial future; however, others are not even considering their long-term financial health and aren’t concerned about retirement; families, and investment portfolios as yet.

For a millennial, the biggest financial concern is making rent; keeping a car running; food; and potentially having money available to socialise. Some millennials are having to pay their own way through further education as they still work their way into carving out a career for themselves. Thinking about a retirement annuity seems a concern for the future; and many think it is something you only have to start worrying about when you’re in your 40’s.

This is one of the biggest mistakes that millennials are making today; as with the current cost of living; planning for retirement and long-term financial wellness is something that should begin in the 20s. Putting money aside for retirement now as opposed to holding up 20 years can mean the difference of having the option to afford to retire.

Why millennials are not yet saving for the future

There are a number of reasons why millennials are finding it difficult to save for their financial future; such as low entry-level salaries; debts (such as student loans); tax and of course, maintaining their social lifestyles. Add the skyrocketing cost of living to the mix, and salary increases that aren’t catching up to inflation, then it becomes more difficult – although not impossible – to prioritise investing and retirement planning.

With careful financial planning and small sacrifices, millennials can start early to build up a lifestyle that will make all the difference in the long-term.

How to overcome the excuses:

“I don’t have enough money to save”

Saving has nothing to do with the amount you earn, however everything to do with the percentage of your salary that you spend. Regardless of whether you make R4 000 or R40 000 every month, the best way to save is to spend less than that amount.

Many adopt the view that they will save that which is left at the end of the month, rather than plan to set money aside before dealing with month-to-month expenses and general spending. To avoid the temptation of spending what’s left; rather consider setting up a recurring debit order or scheduled payment into a separate savings account to assist you in becoming more disciplined, and accustomed to the routine habit of saving monthly, without even thinking about it.

“I have too many expenses”

For many millennials who are considered first-generation middle-class; and an enormous portion of their expenses goes towards playing asset catch-up: Buying cars, homes, and even household appliances that are already in place or are passed on in established middle-class families. Unfortunately, the reality is that many end up in debt as a result of these expenses; and they often resort to taking out credit, personal loans, or financing to cover the costs of these purchases as they are unable to afford to pay them outright.

Unfortunately for some, there is no alternative as they have no choice but to have to purchase a fridge; bed; microwave; and so on when starting off after leaving their childhood homes. If however, there is an opportunity to continue to stay with the family or parents for a while longer, while building up savings to rather purchase these items in cash; then this could take a lot of debt-pressure off during the earlier stages of starting a young adult life.

As tempting as it might be to become independent as quickly as possible; there is no reason why public transport and staying at home a little longer should be a concern. Save for your first car; house deposit; and appliances once you start earning your own income; and as soon as you have secured a nice sum of money that allows you to acquire these items; then consider venturing out into the world and start adulting.

Whilst millennials are eager to start building up their own credit profile as quickly as possible; practicing patience while saving for a deposit and ensuring you have sufficient funds available to pay your repayments monthly will go a long way in avoiding debt-stress and unwanted financial pressures.

“I have to take care of my family”

Research has indicated that as many as 70% of South Africans working in the major cities are supporting family members or believe that they will have to in the near future. For many, this is because their families and communities made extensive sacrifices to give them education and a possibility at a good life, and hence they feel an emotional responsibility to pay it forward.

With careful financial planning and a clearly defined personal budget; you can structure your finances so that you are still able to support yourself as well as other people. Sit down with your financial dependants and give them a clear picture of your finances. This will define clear boundaries and help you to manage their expectations – and your personal budget.

“I don’t have access to a pension or provident fund”

Here’s the good news: You don’t need to depend on your employer to save towards retirement. A Retirement Annuity permits you to save money on your terms; it is held in your personal name and invests in your choice of unit trusts. It also “moves” with you all through your working life, which means you can keep on contributing to the investment as you change careers; and it also offers flexibility on your monthly contributions based on your affordability; while continuing to build up your financial safety-net for future retirement.

“I can start later”

Financial procrastination can seriously damage your financial future. Assuming that you may need to have R100 000 of every 10 years, and you started saving today, you could accomplish this with just R500 per month. In the event that you delay for five years, you would need to put away R1300 every month to accomplish your goal in time. The earlier you start planning for the future the better your quality of life will be in the long-term as you let compounding do most of the heavy lifting to help you reach your financial goals.

It is easy to fall into the trap of only living for the now and not thinking about your financial future. As a rule, you are robbing money from your future-self by spending it now. That’s short-term reasoning, and it can possibly push you into trouble when it comes to debt and making any sort of financial progress.

Getting into the habit of investing money will require you to adjust your attitude towards savings and spending – but it is a step that will pay dividends in the long run.

Contact us should you wish to speak to a Bayport Financial Services consultant about a personal loan, or for advice on credit life insurance on your personal loan.