Start with your best foot forward
As we approach the end of another year, many students will be thinking about their lives going forward and what the future may hold for them. After graduating many will be entering the job market, starting on their career path and entering a new life stage. According to Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, 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 their own property when they decide to get into the market,” he says.
Goslett provides 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. “With the interest rate hikes placing further financial pressure on consumers with high debt levels, it is advisable to make every effort to reduce debt at all costs. Once student debt has been cleared, the consumer will be able to start building their saving,” advises Goslett. “The majority of South African consumers 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 successful 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 for graduates to try and live within their 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 of. This will affect the graduate’s chances of bond approval at a later stage if it is not paid off,” says Goslett.
He adds that 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. Goslett says that apart from the deposit, 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. “If possible any salary increase that the graduate receives should be put towards building up savings instead of splurging on an expensive purchase or holidays,” advises Goslett.
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 always 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 a period of 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 in the future,” Goslett concludes.
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