START WITH YOUR BEST FOOT FORWARD
PUBLISHED 2 DEC 2017
START WITH YOUR BEST FOOT FORWARD
Every year graduating students will be thinking about their lives going forward and what the future may hold for them. After studying many will be entering the job market, starting on their career path and entering a new life stage. The financial decisions that these young consumers make early on will largely dictate their financial well-being in the future. Starting out in the right manner from the beginning will assist graduates to build a financial nest egg that will help them to achieve their financial goals, such as owning property when they decide to get into the market.
Here are a few crucial steps that graduates can take to ensure they set out on the right path:
Pay off student debt as quickly as possible
Unfortunately, most students will graduate with substantial student debt which will hinder them financially until it is paid off. Ideally, graduates should focus on paying off the debt as quickly as possible, so that they start their new endeavours with a clean slate. Once student debt is cleared, they will be able to start building their saving. The majority of South Africans are struggling with high debt levels and minimum savings, however, if graduates can take the necessary steps to reduce their debt from the start, they will be paving their way for financial success in the future.
Don’t live above your means
With starting to earn money comes the temptation to indulge and spend on unnecessary luxury items. However, it is best to try and live within your means and avoid making large purchases when initially starting out. Purchasing large-ticket items could leave graduates in further debt which can take years to get out, which will affect their chances of bond approval at a later stage if not paid off.
A high debt-to-income ratio will impact the graduate's ability to show the necessary affordability levels for bond approval. Therefore it is vital that graduates exercise disciplined spending habits from their first pay cheque.
Save, save, save
The sooner a graduate starts putting money aside for savings, the better. Compared to some of the other emerging markets around the world, South Africa has a very low household savings rate. As a result, many prospective homebuyers do not have the necessary savings in place to meet the bank’s deposit requirements during the bond application process. Homebuyers are also required to have money for the other expenses involved in a property transaction, such as the transfer duty, attorney fees and registration costs. Where possible, any salary increase that the graduate receives should go towards building up savings instead of splurging on an expensive purchase or holidays.
Prepare for an emergency
A portion of the savings should be set aside in a contingency fund. It is often impossible to predict what will happen in this life, so it is best to be financially prepared for the unexpected. Financial advisers suggest that an ideal goal to set when saving for an emergency is enough money to cover living expenses for six months. A contingency fund will reduce the need to use credit cards or personal loans when unexpected expenses occur.
Seek professional advice
A professional financial adviser will be able to assist the graduate with drawing up a budget as well as providing them with a personal financial plan that will help them obtain their future goals.
Cultivating healthy financial habits from the start and using the right money management techniques will ensure that young professionals will be able to take full advantage of opportunities that present themselves in the property market. Implementing a financial plan from the outset will assist graduates in realising their homeownership dreams.