One’s first pay check: can it last until retirement?
You've probably seen it many times before in bright-eyed graduates you've hired. Investing in their future and eventual retirement are probably the last things on their minds. These shouldn't be. Too many people wait until they are older to consider their retirement options. In fact, careful financial management should be a lifelong habit that starts with one's first pay check. Being disciplined about saving and effective financial management makes all the difference between just scraping by in, or sailing through, financial emergencies and enjoying comfortable retirement sooner rather than later.
Managing your money effectively is about more than putting it in the bank
You should start investing for retirement as early as possible, with a standard retirement annuity or provident or pension fund. You should also start saving for big purchases and emergencies - aiming to have up to two to three months' income set aside – because life happens, and you do not want to have to go into debt to cover an unexpected crisis.
You can make your savings work for you over the long term through careful and effective planning and investment. Since most people are not investment experts, I recommend appointing a properly qualified, independent financial planning institute–accredited advisor.
Even if someone is just starting in their first job and feels they don't have finances to speak of, it is important to get advice covering areas such as:
- Risk planning,
- Emergency funding, and
- Retirement saving.
Most practices will give you a cost-free initial interview and low-cost charge for a proposal on investment. In my view, this is the best investment a young person can make.
7 Ways to maximise your pay check for your future financial well-being
1. Contribute as much as you can afford to a retirement annuity or provident or pension fund,
2. Get an appropriate level of life cover while you are still young and healthy,
3. Aim to save 15% of your monthly income, with some allocated to long-term investments and a portion kept liquid for emergencies,
4. Avoid retail credit, loans and other debt wherever possible,
5. Only use a credit card if you settle it in full each month,
6. Don't over-extend yourself financially – especially when buying a car or making lifestyle purchases, and
7. See saving just as 'delayed spending': the longer you can delay spending, the more money you will have available for your retirement years.
Most people see retirement planning as something they will attend to 'later'. But with a limited number of paydays in your life, later may be too late. You might work for 40 years from age 20 to 65, but you might live another 30 years after retirement, so any savings and investments made during your working years will have to last for decades. Even if you don't intend to "retire and do nothing at all" one day, sound financial planning while you're young gives you the freedom to embark on a second career out of choice, rather than necessity, in your later years.
