Financial Guide to Graduates

2014-11-12 10:21

Not everyone has the good fortune to attend a university or other tertiary institution.  To then land a job and start earning an income is another great achievement, and a privilege many don’t get to experience. Moving from barely making it from month to month on a low allowance to receiving a monthly pay cheque is a huge jump and nothing short of a culture shock.

Suddenly, it seems like you can get all those things you used to want and could never afford. Therein lies a trap which many have fallen into.

There is a general misconception among the youth that once you have finished varsity and have a job, you have to ‘show people’ that you are now working.

The most obvious channels for doing this are getting a car, staying in a fancy place and a wardrobe overhaul.  Don't get me wrong, there is nothing out of place with any of these - the problem mostly lies with why and how you go about doing it.

Below are some financial matters you must be aware of and take into consideration when starting work straight out of university or any other tertiary institution (and this applies even to people who are already working):

1. Your budget/financial plan

Whenever you fail to plan, you have already planned to fail. If you receive your income and haven’t decided in advance where the money will be directed, it is easy to end up splurging and wasting it on unimportant items.

Budgeting and sticking to the budget is important because it helps prevent reckless spending, which is a precursor to ending up in debt.

Budgeting is important because it helps you differentiate between needs and wants.

A need is something which is essential for your sustenance and well-being, i.e. food, clothing and shelter. Wants on the other hand are things which are ‘nice to have’.

A few examples: though you need to eat to stay healthy and energised, you don’t necessarily have to eat fancy food at an upmarket restaurant. You do need clothes to wear, but you don’t need the latest outfits by the top designers.

2. Deciding where to stay

It is important to find a place which is comfortable and where you feel at home after you come from work. You will realise you spend more time at work or outside your accommodation than you do at home.

When starting out, don’t go for expensive or top-of-the-range flats - look for something you can afford and which doesn’t strain your pocket.

You might consider starting to put aside money so that you can accumulate enough to then get a home loan and pay off a bond on your own property, rather than spending too much money on rentals.

One thing people might never think about is the lure of space.

When you get a flat/house to live in, make sure you do not get caught in the trap of wanting to fill empty space. Many have ended up buying furniture, appliances and/or equipment they never really needed just because there was some space which was ‘luring them to be filled’.

Be wary of this, as you can become indebted because of obtaining things you don’t really need.

3. Getting a car

You should ask yourself objectively or get someone you trust to question your motives; as you start explaining to yourself (or to the person) you should be able to realise exactly why you have decided to purchase a vehicle.

If you can use public transport, car pool with others or even choose accommodation close to your workplace, by all means do this.

Do not rush into buying a car when you haven’t yet worked out your financial rhythm, ie how to handle your financial transactions in a stable manner.

Remember a car purchase goes beyond a monthly installment; there are other costs involved such as fuel, insurance, etc. Be sure to shop around for the best deal on all of these.

4. Updating your wardrobe

When you start to work, you will need to get outfits which are professional and presentable. The best option when it comes to buying clothes is to get items for cash.

In this way you will i) most likely choose wisely and not compulsively and ii) you will not get items which are ‘appealing to your eyes’ yet which you might actually never get to wear.

Many people have jumped into opening clothing accounts with many different retailers, when in most cases it would have been better to buy items for cash or, if it’s opening an account, sticking to one shop.

It might seem like you are ‘blinging’ by having your wallet or purse filled with cards from many different stores, yet you could be setting yourself up for failure.

5. Don't go overboard with gadgets and appliances

Nowadays some flats come already furnished and you will need minimal extras. If your accommodation is unfurnished, be careful not to rush out to buy things on credit.

Cash is king when deciding to get furniture and appliances. Another option is to check the many different second-hand shops, online sales portals or even classifieds/adverts in stores, etc where you can obtain good quality furniture.

When it comes to appliances such as a stove microwave, TV, home theatre, etc make sure you have your priorities straight.

It is better to go without a TV or sound system for a few months and save up for them than having to buy on credit.

Make sure you get a good new bed - of the few hours a week you will spend at home, most will be spent resting and sleeping. It is therefore wise to have a comfortable bed.

On the issue of gadgets: in varsity you might have had eyes set on that latest smartphone, tablet, notebook, etc but make sure you are careful when you go out and sign contracts for one or the other. These gadgets are ‘nice to have’, but do consider objectively whether you really need them.

Something people often overlook with regards to smartphones, etc is the cost of data purchases. An objective assessment will enable you to either delay and/or cancel plans to purchase some of these gadgets.

It might also help you to shop around for the best deals by comparing the offerings of different service providers.

6. Financial products free-for-all

Entering the workplace makes you attractive to many institutions looking to get a share of your money. Many different financial products will be dangled before you and it is financial planning which encompasses what you aim to achieve that will enable you to go for the appropriate products and overlook others.

Make sure you don’t sign up for products you don’t understand. A trick often employed by sellers of these financial products is to play on stroking your ego by ‘acknowledging how you are now in a different socioeconomic class because of being a graduate’.

Don’t take their bait, otherwise you will find yourself signing up for packages you don’t need.

Even if you get offered a credit card, don’t go for this until you have mastered how to manage cash. If you haven’t learnt how to handle a positive balance, don’t lie to yourself that you will be able to handle a negative one.

Despite earning good salaries, many graduates have been caught up in a debt trap because of having many credit cards which they end up not being able to settle - with interest continuously compounding.

There are certain financial products/platforms which you must ensure you have.

Most likely as a student you might have been using a student account; it is prudent to convert your account to a savings or cheque account as these come with certain benefits.

Again, make sure you shop around and choose the financial institution which offers you the best deals in terms of what is offered and the related costs.

Be sure to set money aside for savings and also for investing in your budget. A great place to invest is unit trusts. For as little as R300 per month you can start benefiting from the growth prospects offered by the stock market.

Bonus: peace of mind

If you heed the advice given above, you will realise that you will be able to handle your money and channel it where you want it to go, rather than it dictating to you.

If you are in debt, you are basically a slave to whoever you owe money to. Before making a decision to channel money for one use or the other, you need to take the creditor’s terms into consideration.

Being in control renders you financially free and adds to your quality of life. You don’t have to worry whether the sofa you are sitting on, the TV you are watching or the car you are driving could be repossessed because you are skipping payments due to a tight financial position.

Hope for those already in the debt trap

It is not all doom and gloom if you find yourself caught up in a debt trap. To move out of this unpleasant place of being trapped, the person who took you there is the one who can take you out - YOU!

You need to make the decision and resolution to change -  and stick to it. If it means having to close off certain accounts, cutting up some credit cards, selling some unnecessary goods or renegotiating contract terms, so be it.

For those who might be caught up financial distress, make sure you consult others such as a financial planner, or even get the services of a good debt counsellor.

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2010-11-21 18:15

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