Common money mistakes of young people - Part 2

…continued from previous post

Common money mistakes of young people

·         Setting Financial goals & Developing plans: Young people do not set financial goals. If you fail to plan, you plan to fail.  Goals should be Specific, Measurable, Achievable, Realistic and Time bound (SMART). More details are in the blog.

·         Living pay check to pay check: A lot of young people live from pay check to pay check. Before the end of the month, they are broke and have to borrow to make ends meet and once their next pay-check comes, they are paying off debt from the previous month and the cycle continues.

·   Leaning too much on parents: A lot of young people depend on their parents for everything. They don’t know how to create wealth on their own and cannot survive without their parents. It is best to “leave the nest” early on in life. If you wait, you may never be able to do so.

·         Failure to plan for the future: A lot of young people fail to plan for the future. They don’t start planning for retirement or partake in estate planning in their early years.

·      Not paying yourself a salary:  Young people should consider paying themselves by saving. Savings should be perceived as paying yourself a salary or paying yourself first. Furthermore, entrepreneurs should put themselves on a salary so that they do not hinder the growth of the company by dipping into companies cash flow.

Advice to young people

·         Cut your coat according to your material and not your size: Learn to live within your means. If you have investments and savings, then by all means buy what you like however, if you can’t afford it, instead of borrowing, save towards it. There is a time for everything.

·         Before buying anything ask yourself “is it a need or a want”.

·         Take advantage of bargains, discounts and sales.

·         Have and stick to a budget

·         Stay away from debt

·         Pay yourself by saving

·         Invest

·         Understand compound interest:   Compound interest is the interest you earn on your interest. So instead of spending the interest you re-invest it. So for instance if you invest N100 in an investment vehicle that provides a return on investment of 10% annually, at the end of the first year, you would have N110. Most people would spend the N10 earned as interest and only invest the principal of N100. However, a person who understands compound interest would reinvest the entire N110 and would have N121 at the end of the second year.  Albert Einstein says: “Compound interest is the eighth wonder of the world. He who understands it, earns it, he who doesn’t , pays it.”

·      Have clear goals and a plan: It is reported that a study was done in Yale. According to the study only 3% of a graduating class had clear written goals. 20 years after the same 3% were earning ten times more than the 97% who didn’t have written goals.

·       Financial planning: Know where you are financially. Details on how to do this are on the blog. Set goals, develop plans, keep records, and review progress periodically.

·         For married couples: Set up a joint savings plan, kids’ education fund, retirement plan, estate plan, budget etc

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