In my line of work as a financial coach I have found that providing easy practical steps for individuals to follow on their journey to financial freedom is the best way to teach and empower.

Adolescent

Start reading personal money management books and listening to podcasts. 

Practically speaking, this is the best time to create and foster good money habits, adolescents are most likely earning an allowance or small stipend:

1. Open bank accounts. Have one for daily spending and one for saving for future goals. The savings can be a 7day notice account so you aren’t tempted to dip into it for unnecessary expenditure. This is the best way to learn about living within a budget than you’ll ever learn from reading about it. 

2. Pay yourself first. This is the personal finance golden rule and you must never fail to live by it. Whenever you receive money from jobs, allowances or gifts: pay yourself first! This means putting a portion of the money into a savings account for future use. If you have a big purchase in mind, set a goal that’s specific in two dimensions: how much money you need and when you need it. Then figure out the amount and frequency with which you should put it away to hit the target. Just like adults, teens should learn early to make their money work for them.

Young adult

More money does not have to equal more problems. If you have been keeping up with your reading and learning as you go, dealing with more money should not scare you. The golden rule remains, pay yourself first! Now let’s add on a few more practical steps to build onto. 

1. Build an emergency fund. This is a separate account where you save about 3 to 6 months of your monthly expenses to help deal with unexpected emergencies that require your money. Nothing in life is guaranteed, not your health, life or job. An emergency fund sets you up to be able to take on the financial burden that comes with unexpected life events. This is a non negotiable, build your war chest, it will come in handy I promise.

2. Start investing. My golden rule for investing is if you don’t have the time, knowledge and interest in understanding how it works, leave it to the professionals (asset managers). You are young and your time horizon is long so typically you can afford to be aggressive and take on more risk. Look for aggressive funds that are high in equity and have offshore exposure. No cash, you have your bank savings accounts, and emergency fund for that. 

3. Do not buy on credit if you don’t understand interest, repayment terms and the consequences of defaulting. Take some time and read up on the different types of debts that people fall into. 

4. Start thinking about retirement. Your employer will most likely have a pension fund that you contribute to. If not, open a retirement annuity and start small. Retirement is a far off destination but it is inevitable. You don’t need to know how it will look right now, just save for it so as your goals and dreams for retirement start to take shape when you get older, money will not be the thing holding you back. 

5. Live rent free for as long as you can. If you are privileged enough to live with your parents, do it until they get tired of you and kick you out. Living on your own is expensive, enjoy the perks of home cooked meals, and not paying rent. 

6. Write a basic Will, you have assets so you must direct how you want them distributed when you die. 

Adulting

Adulting is hard but you are prepared. You’re probably living on your own and have a car that you financed smartly because you understand how to use credit wisely. 

Practically speaking:

1. Once your emergency fund is at 6 months worth of expenses. You can reduce contributions or stop contributions all together and let it slowly grow while you divert more funds towards growing your investment portfolio and saving towards retirement. You probably also have more goals you want to save for like travelling and furthering your studies. 

2. Start creating other sources of income. What you have more than anything at this stage is time to start a side hustle. We need to start looking at ourselves as money making assets. Learn new skills and leverage them to make more money. There are free online courses and YouTube is also a great learning resource, use everything at your disposal. 

3. It’s time to start looking at life insurance and funeral cover. You might not have kids or be married but life insurance is necessary if you have people in your life who depend on you financially. Also get basic funeral cover so the financial responsibility of burying you does not fall on anyone else. 

4. Create a file of all important documents. Have your Will, life policies, investment accounts, certified copies of your ID and other important documents stored.

*Thembi is a Financial Wellness Consultant working with individuals and businesses to increase financial literacy amongst Namibians. Previous articles can be found on her website www.thembikandanga.com