Financial steps that every young professional should take

young professionalyoung professional
young professionalyoung professional


Financial steps that every young professional should take

Entering the working world as a young adult is at once exciting and scary. Suddenly, you are on your own and having to make big decisions about your life. These decisions include financial aspects, such as whether or not you should buy or rent a flat and if you should buy a new or used car. There are numerous steps you will take in your life as a young professional, and outlined below are some of the most vital and basic ones to help you along your way.


Create a budget

Whatever financial decision you are in the process of making, the very first thing you will need to do is create a budget. This also applies to monthly expenses. If you are looking at buying a car, use a car repayment calculator to help you come up with monthly expenses or draft up a spreadsheet to calculate whether or not you can afford to buy or rent a flat.

It is vital to prioritise essential expenses, versus discretionary expenses. Essential expenses include groceries, rent, petrol and utility bills, while discretionary expenses include tickets to a concert, a weekend trip away or a new cell phone. To create a monthly budget, take your monthly income, subtract your living expenses and monthly loan and debt repayments. Any money that is left over could be seen as disposable income and can be used for important expenses.


Set up an emergency fund

Before you start paying off any additional debt besides your minimum monthly payments, you should set up an emergency fund. Planning for unexpected expenses is crucial as these unforeseen circumstances can have significant financial implications.

If you suddenly fall ill or lose your job, you will need to have money to use for the period where your income is no longer regularly coming into your bank account. Ideally, you should put away three to six months of your living expenses, but making a regular contribution to this fund is also helpful. To avoid dipping into these savings, you could set up a different bank account or place the money into a 32-day notice account or savings pocket.


Build credit

This is essential if you ever need to take out finance from your bank, as your credit score will influence your application approval for home, car or personal loans. It can be difficult to build credit if you do not already have loans which you are paying back monthly, but it is not impossible.

One way to build credit is to get a credit card, but be sure to put a very strict limit on it, or even opt for a lower limit than what your bank offers you. You could try opening an account at a clothing store or homeware store if you prefer not to have the temptation of a credit card in your wallet. Having a cheque account instead of a debit or savings account can go a long way towards building your credit as well.


Set up a retirement fund

If you want to stop working someday, you will need to have savings in place in order to live without a monthly salary. You should set up a retirement fund at this early stage of life so that by the time you reach retirement age, you are able to rest easy and not take up a job in your older years.

If you do not have an employer-sponsored retirement annuity plan, then you will need to set one up yourself with a certified provider. These monthly contributions mean that you will be able to retire in comfort in your old age, rather than having to scrimp and save while looking for another job just to make ends meet. Your contributions can be as little as R50 a month or as much as R500 per month, depending on your income.


Take out a medical aid or hospital plan

You may think that you are too young to be worrying about illness or accidents, but the truth of the matter is that you can never predict what will happen to you in life. This is why you should take out a medical aid or hospital plan once you have worked out your budget.

A hospital plan is a good option for young professionals, as you are healthy and fit, without much need for chronic medication. However, you will need to keep in mind that your situation may change. You may be single now, but in a few years you may get married and will need to ensure that your spouse is covered for their medical issues. You may have children in the future and will have to cover these medical costs, which some hospital plans do not provide for.


Final words

As a young professional, you are most likely focused on advancing your career, allowing your finances to fall by the wayside. If you follow the steps outlined above, your financial situation will improve and you will be able to combat every eventuality that may come your way. Creating a budget is vital and will allow you to start saving towards your future. Once you have set up your budget then everything else will fall into place easily. If you are unsure of how to take out a retirement fund or medical aid, you can speak to an investment professional.

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