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It’s nice to have a decent steady salary
at last. Now it’s time to think about what to do with that income. For
most young people, the idea of saving and investing seems like a
lifetime away; most people don’t start thinking about saving or
investing for their financial future until they are well into their 30s
and even later. It is important to realise that the choices you make in
your twenties as you start to earn play a critical role in your future
financial security.

Build your knowledge of investing

Investing successfully has much to do
with knowledge. Unfortunately, personal finance is not part of the
curriculum in schools and colleges and young people step out into the
real world for the first time without the skills and knowledge to manage
the money that they earn. Indeed, they are just trying to acquire the
most basic financial skills when they need them the most.

Many young people ignore the financial
papers and as a result, they do not get to learn about investments or
money. Whether you take professional advice or not, you need to educate
yourself about money matters and become “financially literate.” Enhance
your knowledge by reading; there is a plethora of information out there,
in newspapers, books, magazines, and on the Internet.

Establish your short, medium and long-term goals

The first step in financial planning is
to identify your goals. Your short-term goals might include: Going back
to school, planning a wedding, buying a car, or taking a vacation. Think
about medium-term goals, such as, owning your own home and financing
your children’s education, whilst your long-term goals may include
planning for your retirement.

Live within your means

It is very tempting when you first start
earning, and particularly where you have few financial
responsibilities, for you to spend excessively on mobile phone bills,
clothes, accessories, gadgets and entertainment. Critically review your
income and expenses and create a budget so that you can see exactly
where your money is going and then make adjustments where necessary.

Manage your Debt

Once you start earning a regular salary,
you are likely to have access to some credit. Be cautious about
borrowing; it is better to borrow for things that have lasting value
such as your education or your first home rather than for consumables
such as the latest smart phone or clothes. Start to build a solid credit
history from now by paying your bills on time and systematically
reducing any expensive debt. The way you handle your debt from now will
be important when you need to borrow more significantly in the future.

Pay yourself first

Most young people feel that they don’t
earn nearly enough to even consider saving. Regular investing is the key
to building lasting wealth and even small amounts add up surprisingly
fast if you invest on a regular basis. Even when money is tight, try to
save at least 10 percent of your monthly salary. Your aim should be for
you to have enough cash to cover at least three to six months of your
expenses so that you have something to fall back on to take care of
unexpected expenses such as car repairs or other bills. These savings
should be kept in certificates of deposit or money market accounts to
meet short-term goals such as buying your first car or planning towards
your wedding.

Start investing to meet your goals

What will you do with your money? Will
you start a small business or commit to buying a small plot of land?
Have you been thinking about investing in stocks but don’t quite know
where to start? Perhaps you don’t have the time or know how to select
your own stocks and don’t have that much money to spare. If you are
young and do not make much money but want to start investing, a stock
market mutual fund may the ideal investment to meet your medium and
long-term goals.

Mutual funds usually set relatively low
minimum amounts for initial and subsequent subscriptions. In Nigeria,
you can invest from as little as N10,000 which makes it affordable for
smaller investors. Historically, the stock market has out-performed any
other type of investment over time, but it should be considered
carefully as it comes with greater risk.

It is important to spread your
investments over different asset classes, so that a loss in a particular
investment may be minimised by gains in another. Mutual funds offer
such diversification and help you spread your risk. Buy into an
established scheme that has an experienced fund manager and good
performance record. You need more knowledge and usually a larger amount
to invest directly in stocks and still build a diversified portfolio to
reduce your risk. But, whether directly or through mutual funds, the
important thing is to get a large portion of your investments into the
stock market as early as possible as you have the time to ride any
short-term volatility.

Start planning for your retirement

It may seem odd to talk about retirement
when you have barely got started with work. Naturally, you are more
concerned about your job and not the end of your working life eons away.
As soon as you start work, you will be eligible to contribute 7.5% of
your pre tax income to a Retirement Savings Account (“RSA”) with your
Pension Fund Administrator (“PFA”) this will be matched by your
employer. You have an edge if you start to invest regularly for
retirement from now. Setting up automatic contributions to either one of
these retirement vehicles at a young age will help you build wealth
effortlessly.

The luxury of time

When you are young, you may not have
much in the way of income or assets. However, you do have one of the
most valuable resources at your disposal. That resource is, time. The
day you start earning is the day you must start to save. At this time,
you tend to have fewer financial responsibilities; once you start
raising a family, responsibilities and expenses begin and that can be a
challenging time for most young families. But investing a significant
part of your earnings from the start gives you an advantage of a few
years.

One of the greatest failures of investing is procrastination. If you
are consistent and disciplined, your savings will be able to grow
considerably. The financial choices you make now, will largely determine
your quality of life in future. Time is on your side; so start now.