After completing their studies, most graduates will begin their career path and embark on their next stage in life. What many fail to realise is that the financial decisions that young consumers make early on in their lives will largely dictate their financial well-being in the future.
Regional Director and CEO of RE/MAX of Southern Africa, Adrian Goslett, explains that starting in the right manner from the beginning will assist graduates towards building up a good credit score and creating a financial nest egg that will help them to achieve their financial goals, such as owning property.
“When graduates first start to earn money, the temptation to indulge and splurge on unnecessary items can be difficult to resist. However, to set themselves up right from the beginning, graduates will need to learn how to live within their means and avoid making large purchases on credit. A high debt-to-income ratio will impact a graduate's ability to show the necessary affordability levels for bond approval. Therefore, to give themselves the best chance of success, graduates must exercise disciplined spending habits from their very first paycheque,” Goslett advises.
Unfortunately, most students will graduate with substantial student debt which will hinder them until it’s paid off. Ideally, Goslett recommends that graduates should focus on paying off this debt as quickly as possible. “Once student debt is cleared, they’ll be able to start building up their savings. Many South Africans struggle with high debt levels and minimum savings, however, if graduates take the necessary steps to reduce their debt from the start, they’ll be paving the way for future financial success,” says Goslett.
The sooner graduates start putting money aside for savings, the better. South Africa has a very low household savings rate. As a result, many prospective homebuyers don’t have the necessary savings in place to put down a deposit or to cover the other expenses involved in the property transaction, such as the transfer duty, attorney fees and registration costs – which can end up costing buyers tens or even hundreds of thousands of Rands. To calculate how much these costs can amount to, buyers can use an online bond calculator.
“Where possible, any salary increase that the graduate receives should go towards building up savings instead of unnecessary splurging. A portion of these savings should be set aside in a contingency fund. It’s impossible to predict what will happen in life, so it’s best to be financially prepared for the unexpected,” he recommends.
Most financial advisers suggest that an ideal goal to set when setting up an emergency fund is enough money to cover living expenses for between three to six months. Having a contingency fund such as this will reduce the need to use credit cards or personal loans when unexpected expenses occur, which will protect consumers credit scores and help them avoid getting stuck under piles of debt.
“Healthy financial habits and the right money management techniques will ensure that graduates can take full advantage of property market opportunities as they arise. Those who are close to having the necessary finances in place can speak to a real estate professional who can help them begin their search for property,” Goslett concludes.
