The new year and new you is here! It’s a time when many 20-somethings will be joining the workplace for the first time. They’ll be earning their own money and of course, there’s all that wonderful spendi- WAIT!
Sorry to burst your bubble, 20-something, but, unless you happen to fall into an entry-level job paying hundreds of thousands of Rands a month, you’re going to have to curb your spending enthusiasm a bit. So, here’s a little advice on spending wisely – while still enjoying your hard-earned money.
Budget. We need to be realistic as the current economic conditions have hit middle-class South Africans hard, leaving many using their credit cards for regular purchases. Which is why it’s important for those entering the job market to commit to healthy money habits from the very first pay cheque.
“Young South Africans face more than their fair share of challenges. Because money is scarce, we need to be extra clever about how we spend it,” Jade Mathieson, the Creative Director at Sea Monster, says. Mathieson is one of the creative minds behind Old Mutual’s Moneyversity online platform. It uses gamification and animation to educate young professionals about personal finance.
“The typical Moneyversity user is young and smart, but without a lot of financially savvy role models to ask for advice. If they get money, they’ve worked hard for it, so the temptation to let others see what they can afford and the credit they can access, is high,” says Mathieson, who worked closely with financial experts to build a money management platform specifically geared towards young South Africans.
Lead me not into temptation!
That temptation to spend all the money and then get a credit card to spend some more is very high. You would be far from being the first working world newbie to fall into that trap. But make no mistake: it is a trap. Data released in November 2018 by the National Credit Regulator shows that nearly 40% of the 24.59 million South Africans sitting with credit debt are struggling to pay back their loan repayments.
Many people understand all too well the penalty of enjoying their credit cards too much. It’s so bad that people end up taking out loans to pay for other types of credit debt. As much as you can, avoid this road and try to use only the money you have. Instead, get into a habit of saving.
Lisa Airey, a Strategy Analyst at Old Mutual advises that 50% of your income “should go to your living expenses, 30% should be used for flexible spending, which could include internet, gym fees, and other miscellaneous negotiable expenses, and 20% should be allocated to your formal savings and investments”.
This doesn’t mean shopping to your heart’s content at all the sales! Just because a product is advertised at a discounted price, it doesn’t mean you need it. Instead, make a list of everything you need: work attire (black jeans for dress up and down for the win!), a laptop, a smartphone, and if you’re leaving your parents’ nest, household appliances. Now, chances are if you buy all this with your first pay cheque, you’re going to struggle to make it to the next payday. So, pace yourself. Can your family help you out with secondhand appliances until you get sorted with brand new items?
You can also consider renting-to-own (RTO) the household and tech items you need. Desiree Dickinson, the Customer Service Manager at online retailer for appliances, electronics and appliances Teljoy, says RTO allows shoppers to keep a tight lid on their finances while still getting all the cool gadgets they want. The nice thing about this purchasing method is that you aren’t locked-in like normal credit, consumers can upgrade, downgrade or cancel at any time to suit their financial circumstances and needs. Consumers know at the outset what their monthly payment will be and the period for which they will need to make payments and the nice thing about rent-to-own is that it is unaffected by fluctuating interest rates.