Like building a house, building your financial tower starts with a sound foundation



WE ALL know that the economic impact of COVID-19 is greater than any event in the last 80 years.  That is a fact.

However, the reality of dealing with this fact will be different for everybody.  As someone who works in the financial services industry together with a team of advisors, actuaries, and relationship consultants, I can categorically say that it is our youth—and more specifically, our millennials—who are going to be hit the hardest.

According to the stats provided from TransUnion Global Study, when compared to older generations, millennials have a lower income and fewer assets.  Add to this a higher level of debt and more dependents, and you will see how this current crisis of ours is primed to impact millennials.

But we can’t simply sit here and wallow in the doom and gloom of unfortunate financial portents.  We need to find a way to be positive, and reframe our position.  We need to bring back the positivity that came with the beginning of the year, because we’ve still got another 4 months to go.

I’m here to offer some fundamental financial guidance, not just for our millennials, but for anyone who is financially young and needs to build a solid foundation.

Fixing your finances requires taking a step back, and it starts with thinking about a collapsed building.


Why does a building collapse?

Think of a collapsed building as a representation of your financial goals and aspirations.  You have to ask yourself, why did this building collapse?  There are likely to be four reasons:

  • The foundation is too weak;
  • The building materials aren’t strong enough;
  • The load is heavier than expected; or
  • Workers make mistakes

If any one of these occur, your building, i.e. your financial situation, is likely to collapse.  So how can we fix this?  Let’s start from the ground up.

The foundation is too weak

How can we build our aspirations and our goals if we don’t have a strong foundation?  Let’s be clear—life will happen, and COVID-19 is a great example of this.  When life happens, you will find that without a strong foundation, your structure will fall over.

To build a strong financial foundation, it is imperative that 20% of your gross income goes into savings of some kind.  You might think that this is a lot, but if you work for a company with benefits, 15% of this is already saved.

While I know that not everyone has the luxury of company benefits, that simply means that you have to seriously consider where that 15% will come from.

The extra 5% on top of that should come from your income.

Secondly, if you have an emergency fund for those occasions when life happens, you need to aim to have at least six months of living expenses covered.  Expenses provide a good measurement as some people have higher expenses than their income, which helps to provide many people with a wakeup call and an understanding of what it takes to live within your means.

The next thing you need to do is protect your assets.  A lot of millennials throw caution to the wind, and decide that insurance is a luxury purchase.  If you want to protect assets like your car and your home, then you probably need insurance.

Think of it this way—if you can’t afford to pay for it, then you need to insure it.  You need your assets to live.  If your car gets stolen or your house burns down and you can’t afford to immediately replace it, then you are left vulnerable.

The building materials aren’t strong enough

If you have weak materials, your building is not likely to last.  In a financial context, debt makes our building materials weak.  When I talk about debt, I mean ‘bad’ debt like credit cards, personal loans, and retail credit.

Interest rates are not a joke, especially if your income is compromised—which it may very well be in the months to come.  If you keep your bad debt as low as possible, that means that your income (or building materials) are strong and fully dedicated to keeping your house in order.

The load is heavier than expected

If your building doesn’t spread out the load evenly, then it is bound to fall apart.  The same goes for your finances.

How do you spread out the financial load?  It starts and ends with a budget.  With the right budget, you can cover your needs, wants, and savings all in one go.

Try to keep your needs below 65% of your income, so that if anything should happen to your income, you are not spending everything you have.  After that, as I’ve already mentioned, 20% should go to savings—and then the remaining 15% can cover your wants.

The trick to doing a budget is to realise that every Rand should have a job—with no exceptions.  With a budget, you can see what trade-offs you are willing to make without extending your spending beyond your means and being tempted to accumulate bad debt.

Workers make mistakes

As much as you want to trust that the house you live in was expertly built and will never collapse, there is always human error to factor in.  We are all human, and all make mistakes.  What are the financial mistakes you should avoid?  Here’s a few don’ts to remember:

  • Don’t accumulate bad debt instead of tackling your existing debt.
  • Don’t cancel your insurance on a whim when you may need it to survive.
  • Don’t get roped into ‘get rich quick’ schemes, because there is no such thing as getting rich quickly.
  • Don’t do nothing—because sitting back and letting your financial situation deteriorate through inaction can only end one way.

Navigating an uncertain future

Times have changed. The whole world has changed.  It’s okay if your goals change, too.  Just breathe, figure out what you want to realistically achieve, and then put a plan in place to do that.

There’s a famous saying that I always teach my clients: “Failing to plan is planning to fail”.  If you don’t have a plan, you are setting yourself up for failure.  How do you ever expect to succeed if you don’t even know what you are working towards?

As you know, every skyscraper started with a plan—so start building your financial tower today, and do it right!

Andiswa Gqwaru is a client success lead at Momentum.





CHRISTIAN HUGO, solution strategist for FNB Money Management

Switching your own mindset around money now, will go a long way in improving the financial literacy of the next generation.  However, it’s not enough to simply tell your kids that they have to save, or that you can’t afford to buy them the latest TV game—you need to ‘walk the talk’ and help them understand how to manage their money from an early age.  Here are some tips to help you switch your mindset and up your child’s financial literacy levels:

Talking about money isn’t only for grown-ups

Children take their cues from you as their parent.  Without necessarily going into too much detail, let your children hear you talking about finances as a family.  Little ears are always listening, even when you don’t think they are, and this is a good opportunity to let them see that talking about money should be an open and honest conversation.

You could include your children in a regular family meeting at the beginning of the year to discuss expenses and goals for the next 12 months.  For example, where do we want to go on holiday this year?  Even if it’s just a trip over a long weekend, you can plan what activities you want to do over that weekend, how much you need to save, and where you can cut expenses so that you can save.

Teach them about the importance of delayed gratification

The Stanford marshmallow experiment is a renowned example of the difficulty of waiting for a desired reward.  50 children were led into an empty room one at a time, and offered a marshmallow. They were told they could eat the marshmallow immediately, or they could wait until the adult returned to the room in 15 minutes, and then be rewarded with two marshmallows.  The interesting conclusion is that researchers then measured the children’s progress over 40 years, and the ability to delay gratification was seen as a predictor of the ability to achieve long-term goals.

Teach your kids that budgeting and controlling their spending is a habit they can cultivate.  One way to start is by having a conversation with your child about what they value or what they want.  Get them to write it down; it could be anything from the latest toy set to a trilogy of books or a TV game.  Then get them to write down how much it will cost, and how much money they have now.  Now chat to them about how they are going to save up to afford the item they want.  Do they save money given to them as birthday gifts, or do they receive pocket money?  Are they willing to do chores around the house to earn more pocket money.

Then, in three months if your child wants to buy something different, you have the opportunity to point out that this will mean delaying their initial goal for instant gratification now.  These conversations can help develop awareness of how decisions made now can impact you later,” he says.

Use age-appropriate approaches

You should ideally start the money conversation with your kids from an early age.  You can teach them the principle of interest when they are as young as five, by simply offering to increase their allowance based on how long they are able to save it.  For example, you may give your five-year old R20 a week for pocket money.  If they have not spent any of this pocket money at the end of the month, they will have saved R80, and you can give them an extra R40 as ‘interest’ that they would not have earned if they had spent any of their money.

Get them more involved, the older they get

As your children get older, the conversation switches up a level—and you can teach them the differences between saving for the short term (two years or less); saving for the long term (two to five years), and investing for the long term (retirement or saving for education, a gap year, a car, or a deposit on a home).  These are important foundational lessons that they will now take with them into adulthood when they need to start managing money for their families.

Start talking about goals and actual costs

When it comes to investing, you can educate your children about realistic goals and actual costs.  For example, start talking about how much it costs to buy a house, how much they would need for a deposit, and what upfront costs they would have to budget and pay for.  A quick internet search on property websites reveals that a R3 million property would require a minimum deposit of R300 000, a bond registration fee of R44 983, and property transfer duty tax of R189 211—a total upfront cost of R534 104.

Unfortunately, currently the money topic remains boxed—and if you want to positively influence your child’s relationship with money from an early age, you need to start having honest conversations with them so that their legacy can be one of sound money management and financial growth.