It is never too early to start equipping yourself with money management skills as it is the gateway to financial freedom in the long run. As for the Gen Z earner who is just starting to think about their future and finances or has been trying to save up some cash , financial literacy is crucial to help navigate the fiscal landscape.
Statistics show that Gen Z demonstrates a growing awareness of money management through saving habits and use of financial technology, but still shows low financial literacy and a need for better financial education.
Therefore young adults in the Gen Z bracket require this knowledge to effectively manage their finances, avoid debt, make informed investment decisions and even plan for long-term financial goals like homeownership and retirement to aid in achieving financial stability and independence.
Below are some tips that helps nudge you as a young adult towards learning how to manage money:
1. Practise Self-control
The most important part of financial planning is self-control; the art of delayed gratification may be difficult to master but is crucial in helping you control your spending and make saving a priority.
Without self-control in spending, it becomes very difficult to get out of debt, build an emergency fund or save for retirement as there are no funds to allocate to the goals.
This is not so say that you cannot ever spend money ,it only means it helps to practise restraint when you receive that paycheck to help you control your spending and avoid unnecessary spending as much as possible.
Avoid temptations such as credit cards as they are a one-way ticket to debt.
2. Educate Yourself on Personal Finance
Increasing your knowledge in money management helps a great deal in setting yourself up for financial freedom.
Understanding your personal finances at a more intricate level aids in helping you be firm in your money decisions, and not to be swayed by advice by third parties.
Take time to read a few basic books on personal finance and once you’re armed with knowledge, it will help you stay in line with your goals. Education on personal finance gives you confidence to confront pressure by external individuals such as family and friends as it is difficult to get you off-track.
3. Learn How To Budget Using The 50/30/20 Rule
To begin your budgeting plan, the 50/30/20 rule is a good way to get your spending under control. This method is designed to help you manage your money better and set financial goals.
There are three categories you need to figure out for your budget – fixed costs( essentials), variable costs( wants) , and savings.
In the method, 50 per cent of your money goes towards essentials which include bills and expenses you must pay every month such as housing, food, and transportation. 30 per cent goes towards wants for the month, which include entertainment, dates, coffee among others.
The last 20 per cent goes to your savings. It is advisable to set aside funds for this category after you pay for your essentials, but before you dip into your discretionary money(wants). This will allow you to spend confidently, knowing you’ve taken care of all your financial responsibilities for the month.
4. Start An Emergency Fund
As a Gen Z earner , an emergency fund is most important to help with unexpected expenses. Ideally, the emergency fund should hold about 3-6 months worth of living expenses saved, so that you can fall back if needed.
Regardless of how low your salary is or how much your business makes, always make sure to save a portion of your income for an unexpected rainy day, as a general rule of thumb, aim to save around 3-6 months’ worth of income.
There are many saving apps online that help with saving for emergency funds including Chumz, Mali by Mpesa among others.
5. Start Investing
Learn about investing in Money Market Funds (MMFs) and government bonds to educate yourself on low-risk options for income generation and diversification within your investment portfolio. These options provide stability during market downturns.
6. Save For Retirement
Saving for retirement in your 20s ensures that your financial future is secure, allowing ample time to develop and implement a robust retirement plan.
Save for retirement in Kenya can be done through enrolling in a pension scheme, setting up personal savings accounts, investing in diverse assets including real estate, mutual funds, and government bonds as well as seeking advice from financial advisors for long-term financial planning.
7. Learn About Taxes
Once you are making more money, you will have to start paying attention to taxes. Even if you are not making a lot of money yet, it is important to understand what category you fall as a tax payer.
Learning about taxes as a new Gen Z earner is crucial because it helps you understand your financial responsibilities, comply with legal obligations, maximize tax deductions and credits, avoid penalties, and effectively plan your budget and savings for future financial goals.
The main thing to remember is that you do not need a degree or certificate to become financially literate. Managing your finances can be easy only if you are keen on educating yourself on money management as early as now. Do not wait till you are in your 40s to set your financial affairs in order, so that you can set up a financial security blanket for generations to come.
