The key to building your wealth is to start as early as possible, but often this is easier said than done for the younger generation, according to Kerry King, advisory partner at Citadel.
Various factors such as debt, the cost of living crisis and retrenchments make it difficult for people in their twenties to start building towards financial stability.
Mariska Oosthuizen, chief marketing officer at Sanlam, shares three money moves people need to make in their twenties:
Learn the value of compound interest
According to Oosthuizen, the sooner people start to invest, the more time they have to take advantage of compound interest.
Compound interest is the interest you earn on your savings, so the sooner you start saving, the more interest you will earn.
Unfortunately, only 10% of South Africans in the 18–24 age group are taking advantage of the gift of time by saving for their retirement, which could be due to short-term bias.
“Short term bias is the desire to give priority to quick gains over long-term success, and because retirement seems far away for young people it’s often deprioritised for more immediate expenses,” Oosthuizen said.
People in their twenties may also feel like they don’t have enough to put away during the early stages of their career but they should not underestimate the value of saving small amounts which has its benefits beyond compound interest.
Start thinking about risk
When you are in your twenties, you may feel like you’re too young and healthy to prioritise life-event risk insurance such as income protection and life insurance, but it is important to have this on your radar.
Oosthuizen said that as we age, we are more inclined to develop health conditions which means higher insurance premiums.
“You’ll typically pay less for life insurance if you take out a policy in your twenties than if you wait until you’re middle-aged, which means that if you start now, you’ll receive the same cover at a much lower cost later in life,” Oosthuizen said.
Build your credit score
According to Oosthuizen, not having a good credit score can count against you.
Your twenties are a good time learn the difference between good debt and bad debt so you can start building a good credit score instead of taking on a lot of debt and credit beyond what you can afford, which will have a bad impact on your credit score.
Remember that a good credit score is built on good financial behaviour.
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