Things you may wish you knew sooner about money

Although learning about money and financial responsibility is a life-long process, there are some things we may wish we had known sooner.

  • The bank is not your dad: Borrowing money from mom or dad is very different from borrowing from the bank. Many parents lend their children money to buy things they otherwise would not be able to afford. It provides excellent teaching moments for parents to talk about being indebted and the importance of paying back money owed. However, unlike your parents, a bank is less sympathetic, probably more difficult to communicate with, and less pliable when it comes to getting its money back.
  • Budgeting is really not that bad: While you are young and have very few financial responsibilities, preparing a budget is easy. Learn how to budget while your finances are relatively simple and make it a life-long habit.
  • Consumer protection rights: Many retailers and service providers manage to take advantage of younger customers who are not aware of their consumer rights. Knowing your rights in terms of cooling off periods, refunds, repair or replacement rights, privacy protection, direct marketing, cancellations, or poor service is key to ensuring you do not lose money.
  • It’s not how much you earn that matters:Everyone wishes they earned more money, but it’s not what you earn that matters. How you employ the money that you earn is way more important. If you earn an enormous amount of money every month but spend all of it, you have no wealth. Wealth is created by consistently investing the difference between what you earn and what you spend.
  • Having debt feels awful: Regardless of whether it’s good debt or bad debt, having debt can keep you awake at night, cause arguments, keep you stuck in a job that you hate, and cause you to make bad financial decisions. If you have to have debt, make paying it back as quickly as possible your number one priority.
  • Everyone has an opinion on where to invest: Every person standing around a braai has an opinion on where you should be investing. From rental property to cryptocurrency to multi-level marketing schemes, the options are as plentiful as there are stars in the sky. Find an experienced advisor that you trust implicitly and stick to your plan.
  • Cheap advice is often expensive: While investment fees are an important consideration, they are not the only factor when choosing an investment. Rather pay a little bit extra to ensure that you are getting truly independent, expert advice from a reputable organisation.
  • Money doesn’t make you happy: In their research, Harvard Business School researchers Grant E Donnelly and Michael Norton did a survey of 4 000 millionaires. Their research revealed that money contributes to happiness insofar as our basic needs are met. But above a certain level, more money does not yield much more happiness. Making money should not be the primary aim. The aim should be to make enough money so that we can employ it to achieve our goals.
  • You will think twice about spending money you earned yourself: Spending other people’s money is easy because you didn’t trade your effort for it. Once you start earning your own money, you are likely to turn every penny over a few times before spending it, which is why your parents probably encouraged you to find a job.
  • Attitude is more important than aptitude:Qualifications and intelligence are no guarantee of financial success. What matters more is a positive attitude, consistent hard work, commitment to a goal, strong social skills, strategic thinking and the ability to get your hands dirty.
  • The cost of delay: While you are young, retirement seems so far away and finding room in your budget for retirement savings seems impossible. However, delaying the start of your retirement savings journey by even 10 years has a major impact on how much you need to put away each month in order to secure a comfortable retirement.
  • Buying branded clothing is a ridiculous waste of money: Buying branded clothing and shoes does not guarantee a better quality product, and spending your hard-earned money to prove to others that you can afford to buy branded clothing is counter-intuitive. If you’re wearing branded clothing but haven’t started saving, your priorities are wrong.
  • It feels good to give: Using your time, resources, skills or money to help those less fortunate than yourself is hugely rewarding and contributes to your self-worth, purpose and finding a place in your community.
  • Your parents probably stressed about money: Your parents might not have shown it, but they probably stressed a lot about money – how to provide the best for you, how to afford your education, whether they had enough money for your school tour, and whether what they could afford was good enough.
  • It doesn’t matter what colour your credit card is: Gold, platinum, black, silver or blue – the colour of your bank card should not impress you. Bank charges, access to banking facilities, interest rates, customer service and how well you manage your bank account are much more important factors.
  • It will rain: Most people don’t set up an emergency fund because they believe it will never happen to them. As US author David Ramsey is famous for saying, “It will rain and you’re not the exception”.
  • Your money personality: Although it’s never helpful to box people into ‘types’, it is useful to understand your relationship with money, your emotional triggers and fears, what makes you spend, what motivates you to save, what biases you are more susceptible to, and how money makes you feel.
  • A wedding lasts a day; a marriage lasts forever: Going into debt to fund a wedding is a terrible way to start your life together. Don’t be pressured into financing an elaborate wedding that will set you and your partner back financially. Ask yourselves, if there was no elaborate wedding ceremony, would you still want to be married?
  • Saving is a gift to your future self, not a chore: If your parents nagged you about saving money, you may perceive the act of saving to be a chore. However, if automated and streamlined, there is nothing laborious about saving and your future self will thank you for it.
  • Once bought, new cars are no longer new: Depreciation is the biggest cost of owning a car, and it loses a high amount of value in the first few years of ownership. The value of a new car depreciates from the time you drive it off the showroom floor. In general, most cars depreciate at a rate of between 15% and 30% per year, but the highest rate of depreciation happens in the first year.
  • Compound interest is your life-long friend: But it can also be your worst enemy. When it’s working for you, your money will grow exponentially and you will end up with a far greater balance than you initially invested. When it’s working against you, you will end up paying far more than you borrowed in the first place.

Craig Torr is a wealth manager at Crue Invest (Pty) Ltd. 

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