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Financial planning should start when you’re single
Don’t put off planning a clear financial roadmap until you decide to start a family.
When you’re in your first job earning your own money, financial planning for your future might be the last thing on your mind. After all, you’re young, single and unburdened by responsibilities – you should be able to enjoy that carefree status to the full until you’re ready to settle down, right?
On the contrary, this is exactly when you should be putting the building blocks of your financial future in place. You never know what the future holds – you could meet someone tomorrow and decide you want to build a life and raise a family with them.
Or it might take a few years before you meet your soulmate and start planning a future together. Or you may even decide that the single life suits you best and choose to stay that way – there are all sorts of possibilities. The only certainty is that the earlier you start taking financial planning seriously, the more time you’ll have to grow your savings and investments into significant wealth.
A sound financial plan will enable you to manage your income, expenses, debt and savings successfully – whether you have only yourself to take care of, or you’re a single parent, a breadwinner who supports other family members, or you’re married with kids. This article explores some financial strategies that you can put in place when you’re young and single to create a foundation on which you can grow your wealth throughout your life, whether you end up with a family to support or continue to fly solo.
Budgeting – know your personal balance sheet
If you don’t know what expenses you have every month, you won’t know how much you can afford to spend on non-essentials, or if you have money left over to save and invest. Your financial planning needs to start with proper budgeting.
- Debt
Debt can be empowering if you manage it properly and build a good credit score, but you need to know how much it is costing you, including interest. Whether it’s your home loan, car repayments, or credit card debt, paying more than the minimum amount every month will help you pay less interest and reduce the cost of your debt.
- Overheads
Budgeting means knowing how much essentials like rent, electricity and water are costing you, and how to decrease these costs if you can. Can you get a housemate or flatmate? Can you join a lift scheme to reduce fuel costs?
- Extra income
If your full-time income isn’t covering your expenses or leaving you with anything to save or invest, consider a side hustle to supplement your income. The key is to find a way to make money out of your own personal hobby, craft, skill or expertise – whether that means making products to sell, performing a service, or consulting and teaching.
Start saving for retirement as early as you can
Saving and investing – a lifelong approach
Include savings and investment planning in your budget. Decide how much you can save every month and what the best ways to invest your savings are. If you can supplement your income with side hustles or part-time jobs, divert as much of the extra income as you can into your investment portfolio.
- Tax-free savings
Tax-free savings options make sense at any stage of your life, and they’re financially accessible if you have a steady income. Tax-free savings accounts can grow your money faster through compound interest if you reinvest interest and dividends.
- Tax-free investments
There are many different tax-free investment (TFI) vehicles, ranging from those that accept small incremental contributions to larger investments in funds and unit trusts. Explore Nedbank’s full range of savings and investment accounts, including our TFI options, to find accounts that suit your needs at every life stage.
South African law allows you a maximum contribution of R36,000 a year (up to a lifetime limit of R500,000) to tax-free savings or investment products. Earnings on contributions within those limits are not taxed.
Retirement-planning and savings vehicles are safe ways to build wealth over time in low-risk vehicles, but you might also decide to risk a bit more in some of your long-term investments in the hope of higher returns. Nedbank offers a full range of investment advice and solutions. If you’re more adventurous about investing, consider online share trading.
Retirement planning
Start saving for retirement as early as you can. There are different vehicles for this, but the key is to start the process as soon as you can – and not to touch your retirement savings!
- Pension or provident funds
These are generally an option if you’re employed by a company, and you can invest in one via a regular salary contribution.
- Preservation funds
These enable you to preserve your retirement savings if you leave your company’s pension or provident fund.
- Retirement annuities
A retirement annuity (RA) is basically a personal pension plan. Unlike a company pension plan, you can take out an RA on your own, so it’s a great option for single people looking after their own future.
- Unit trust funds
These are voluntary savings vehicles that pool contributions from investors in a diversified portfolio of assets. These investments are managed by professionals, so they help you reap the benefits of diversified investments without having to learn how to play the stock market yourself.
No matter what your motivation for planning your financial future is, remember that you’re in control of that future, no matter what your relationship status might be at any life stage. With the right advice and guidance, you can turn the future of your dreams into a reality.
