Good money habits the foundation of building wealth

* This content is brought to you by Brenthurst Wealth

By Leslie Greyling *

Parents want the best for their children and strive to provide them with solid foundations for successful lives when they grow up. However, many neglect detailed discussions about money matters. This issue is barely heeded in schools either, leaving many uninformed and ill-prepared to make decisions about money once they start earning an income.

Leslie Greyling

In an international study by the Organization for Economic Cooperation and Development (OECD) in 30 countries, South Africa comes off worst in financial literacy with an average literacy rate of just 30%. There is also the misconception that only wealthy people can save. By adopting simple money rules and the habit of managing money, anyone can save and amass wealth.

But where to start and what are the main lessons that need to be shared?

In celebration of Youth Month, financial advisor Leslie Greyling provides orientation for young people and children on the subject of money.

Taking the time to learn some key financial rules can help young people, even children, build healthy financial futures. This simple household rule is a good place to start for children receiving pocket money or an allowance and for those starting to have an income:

The 50/30/20 budget rule

50%: NEEDS – Rent, food, utilities, transport, medicine.

30%: WANT – clothing, entertainment, gifts, souvenirs.

20%: SAVINGS – Emergency fund, savings account, investments / retirement provision.

This is the perfect foundation for college students, young adults with part-time jobs, and young people entering full-time employment.

Tips on Money for Teens:

Postponing the satisfaction of not buying expensive jeans on credit, buying them only when you have the money or waiting until you have saved up enough to buy them. The loan rates are high and you will pay a lot more for the item in the long run.

• Build up a good credit rating

If you have a credit card or business account, buy a small item and pay off the card / account in full at the end of the month. This helps build a good credit rating. Be careful with debt, however. Loyalty cards, credit cards, buying a bigger car than you can actually afford can quickly become a nightmare when your income situation changes.

• Know where your money is going

Make sure that your expenses do not exceed your income. Keeping your monthly expenses as low as possible can save you a lot of money over time. Take the time to draw up a budget or just take notes of how much money is being spent and what.

No matter how low the income (subsidy, part-time income or salary) is, put a small amount into an emergency fund every month. Get in the habit of saving money as a monthly expense, it will soon build up into an emergency fund.

Because of how compound interest works, the earlier you start saving, the better.

If you start saving R100 a month for 40 years, you will have five times more money in retirement than your friend who is saving R10000 a month for 30 years.

There are many ways to save money; different types of bank accounts or traditional savings / investment products such as mutual funds and retirement pensions, as well as a tax-free savings account or tax-free investment.

Be wary of online investing apps that could be scams, use reputable companies, and do your research on the product and company in advance.

What to teach young children

The sooner you start teaching kids the value of money, the better. Simple lessons that they can understand and that will guide them into developing healthy financial habits for years to come. For example, give the child a maternity allowance and help him with the “budget”.

For younger children who use cash, it is easier for them to imagine how much money they can spend and how much needs to be saved. For children, the budget rule mentioned above can be adjusted to 60/40.

60% for WANTS: e.g. toys, games, dates / airtime, tuck shop, gifts, additional clothing.

40% for SAVINGS: For maximum impact, use a glass or plastic jar so that the accumulation of money is visible.

At the end of the year or possibly on their birthday, give the child a percentage of the total amount saved so far and let them decide for themselves what the saved money should be spent on. Open a simple savings account with the rest and, over time, switch to another, perhaps tax-free, savings option.

Help them with ideas on how to make money. Walking the neighbor’s dog, washing the family car, or doing small chores can be an incentive to make extra cash. Think of an incentive system that can attract a bonus – achieve a specific goal, perform well in school.

One very important thing to keep in mind is your own behavior. Giving children the rules to develop good financial habits that will lead them to wealth accumulation will have limited impact if household money is not well managed.

Read more about tax-free saving and investing.

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source https://dailyhealthynews.ca/good-money-habits-the-foundation-of-building-wealth/