How do I start out on a good financial footing?

Key takeaways

  • Setting yourself on a solid financial footing is about:

    • Setting good spending and savings habits;

    • Not doing stupid debt;

    • Protecting yourself; and

    • Setting financial goals

Earning your first pay cheque will fill you with good feelings.

You’ll probably have many ideas on how to spend it. The last thing you’ll feel like hearing is how to spend what is finally your own money.

No more EMS or life orientation lessons, thanks!

So this is not an article about what to do with your money. Rather it is one about starting out your adult life on the right foot – to help you achieve your big dreams about how your life will unfold, who you will become, the things you will do and own.

If you look around you, you will see older people who also had dreams once, but whose reality is far from what they envisaged. 

Financial realities have a way of falling short of our dreams.

Most people believe financial setbacks happen to them and they have no control. While you can’t always control what happens to you, you can prepare for many situations.

Most people won’t be honest about their financial mistakes or the fact that they never mastered mundane stuff, like making a pay cheque last the month, taking out insurance or saving for retirement.

Few will also tell you how the financial life you start building now will have a huge influence on your life for many years to come.

Building a solid financial foundation doesn’t take much. You just need to form a few good simple habits.

1. Good spending and saving habits

Not spending more than you earn - or living within your means - from the get go is the way to not only avoid costly debt, but also to start a powerful early savings habit.

You may not be a big earner yet, but this is the time of your life when you can cope with living in a small place, eating two-minute noodles or sharing rides.

A budget will ensure that your earnings stretch far enough to cover all the bases – food, accommodation, transport, clothes and some fun stuff. Read more: How can I draw up budget that works for me? and try the Smart About Money Budget planner.

Your spending priorities should be in line with the things that are important to you and should include saving and investing for future goals.

Saving is paying yourself first and the sacrifice you make now to do it will pay you back much more later on. Incurring debt will give you instant gratification but will pay you back with regret for a long time afterwards.

No matter how small you start, starting now is something you will never regret and, while it may seem too little to get you anywhere, always remember the power of compounding interest.

Revisit your budget once a month to ensure you haven’t strayed off it and, if you have, make a plan to get back on track.

2. Don’t do stupid debt

When you start earning, everyone will be out to try and part you from your money by offering you all kinds of tempting things and deals that will lead you to believe that you can afford them by buying on credit.

You will be offered tempting loans, credit cards, store cards and overdrafts that can make you appear wealthier than you are, but in the end they only make the loan providers richer. 

At times, borrowing can be a powerful way to improve your financial life, but only if you borrow for something that will appreciate in value or enable you to earn more in the future. Try to borrow only to buy a flat or a house, pay for studies or to buy a car that will help you get a job or run a business. See How do I know the difference between good debt and bad debt?

Getting into debt for things that you consume, like food or clothes, or entertainment, however, can start you on a debt spiral that may take years to recover from.

If you are starting life with student debt, it will be a hard mile, but patience and perseverance can get you over that hurdle.

The key to paying off debt quickly is to pay more than your repayments. Use the Smart About Money Debt Repayment Calculator to see how much money you can save by paying more than you have to.

If you do not earn enough to up your loan repayment, be creative about increasing your earnings. Think about a side hustle, like tutoring or selling something you can make, or a weekend job.

3. Protect yourself

When you are starting out in your working life, your future pay cheques are the most valuable thing you have. An accident or an illness could take it from you in an instant, and the consequences would be devastating.

The risk may be low, but it’s not a bet you want to lose. Take out income protection and disability insurance as soon as you can. Read more: What is disability cover? and What is an income protection policy?

Protecting yourself financially also means setting up an emergency fund. What if … you lost your job, crashed your car, lost your cell phone or your lap top? Imagine if you had a fund to pay for these disasters? Read more: How do I set up an emergency fund?

4. Set financial goals

“A goal without a plan is just a wish.” — Antoine de Saint-Exupéry wrote in the Little Prince.

Setting goals forces you to work out what you need in order to achieve them, and then how you can achieve them.  Set shorter term goals, such as travelling, studying further or buying a car, so that you don’t borrow and pay more for these. Watch: Setting savings and investment goals or read more: How do I set savings and investment goals?

Start thinking about where you want to live and start saving for the rental deposit or the deposit to buy your own apartment. Use the Smart About Money Savings goal calculator

Retirement may be very far removed from your reality, but the financial freedom to control how much, and where, you want to work should be a goal that resonates. Achieving this means having savings that can generate a passive income to support your dreams to travel, change the world or just spend more time doing the things you like to do. Read more: Why should I save for retirement? 

5. Pay attention to the adult stuff

If you are lucky enough to start in formal employment, it is likely you will be offered some employee benefits as part of your package.

Medical scheme cover, group life and disability benefits and retirement savings are benefits that can save you from the financial ruin that being without cover can bring. Here’s a quick guide to the questions you should ask.