Many South Africans in the twilight of their careers look back on their financial decisions over the years and see moments in the past where better habits and choices would have ensured more financial security and independence in their present. As the age-old saying goes, youth is wasted on the young.
Once our careers were up and running, we had to deal with added responsibilities; bills, family contributions and so on. It’s hard to plan ahead while trying to keep up with life’s expected hurdles and unexpected obstacles. So, many people spend their lives chasing money and neglect reflecting on their relationship with it.
The prevailing mindset for many young adults is that they don’t have enough money to save, especially in the face of today’s economic uncertainty. But this mindset isn’t unique to Gen Zs. Every generation has had to build in the face of a less than desirable economy. Millennials’ sources of uncertainty included the global financial crisis, the beginning of load-shedding and faltering service delivery. Back in their day, now-senior South Africans had to navigate stagflation in the 70s and 80s and the transition into democracy.
If someone nearing retirement sat down for a chat with someone entering the job market, the former would tell the later that the truth is there will never be a better time to start saving than yesterday but starting today is the next best thing. It’s important to start building a habit of saving from the moment you start earning.
When we see saw our first pay cheque and realised how much less it was than our already-lean gross salary, most of us had the same epiphany to start saving when we earn more. From that moment, we laid the foundations of bad financial habits. Saving isn’t dependent on how much you earn but rather how well you manage your earnings.
On average, South Africans save a negligible 2.41% of their salary. The wait to make more money typically evolves into a cycle of spending more of the money you make as your income increases.
Described as the “8th Wonder of the World” by Albert Einstein, compound growth is a powerful catalyst to financial freedom for those who give it enough time to work its magic. The significance of starting to plan for retirement as early as possible cannot be understated. A 10% annual return investment of R500 per month at age 20 will generate over R3.1 million by age 60; versus R1.1 million for someone who started at age 30. That’s R2 million earned for not waiting for a larger salary.
It’s important to note that the presence of grey hairs shouldn’t be interpreted as a sign that it’s too late to start saving. If you’re reading this at 55, you still have 5-10 years of compound growth to take advantage of before retirement. Today is always a good day to start.
No matter where you are financially there are steps you can take to strengthen your position. Align your expenses with your goals and track your spending against clearly set limits. Helping immediate and extended family should be included in your planning rather than treated as an afterthought if it’s something you regularly make contributions towards. Make saving a non-negotiable habit, no matter how small your contributions. When your income grows, increase your savings and investments before you consider making unnecessary improvements to your lifestyle.
The biggest hinderance to saving is debt. Around 48% of South African adults aren’t saving at all, with many having to prioritise paying off bank loans and other debtors. Formal savings have fallen in recent years while the household debt-to-income ratio has risen to over 60%. There’s great value in responsible borrowing and maintaining financial discipline.
Living pay cheque to pay cheque leaves people exposed to unexpected shocks that can destabilise their very fragile financial equilibrium. Sudden expenses like a burst geyser and utility price increases, without the presence of a financial buffer, increase the need to turn to short-term loans and credit cards.
Ideally, you should have at least 3 months of your essential expenses in an accessible savings account that you can utilise when emergencies occur. If you are in debt, your goal should be to consistently reduce your overall debt while creating enough financial resilience to avoid relying on credit when life happens.
A summary of the hypothetical conversation between two people at opposite extremes of their respective careers would be that wealth is about more than money. True wealth includes financial security, peace of mind, family support and quality of life. Aside from financials assets and savings, invest in knowledge. Understanding money principles is often more valuable than chasing trends.
Financial setbacks are part of the journey. Many of your favourite billionaires had to rebuild from financial turmoil at points in their lives. Think about the legacy you want to leave for your family. Financial planning should also consider how future generations can benefit from today’s actions.
Nedbank Savings & Investments helps South Africans put the financial wisdom of those who have been there and done it into practice to make the most of their earning potential. From building a healthy relationship with money and developing financial resilience, to preparing for retirement and creating a legacy, the choices you make with your money today can shape the opportunities you have tomorrow. With the right habits, guidance and a long-term perspective, you can build financial wellbeing that grows with you through every stage of life.
