Mistakes Young People Make With Money

One of the things many people lament on when they finish the Centonomy program is that they wish they knew all the things they have now been taught.  They believe they would have made wiser financial decisions, would have saved more, would have invested more, would have taken more risks and generally would be in a better place in their wealth creation journey.  Many people have also come up to me and said they would have set better examples for their children or would have handled the money conversation in their relationships a lot better. We have noticed with delight that in the recent intakes more and more younger people are now attending the program.  In some of the calculations that we do, people have all the reasons to envy the younger people.  Today I am speaking to this younger generation. You may be close to graduating, entering your first job or still early in your career.  These are just some of the mistakes you may be making that will have serious consequences in the future.

The first thing most young people want to get once they start earning a decent salary is a car.  The mistake many of you are making is going after the kind of car that other people will admire versus the kind of car that you can actually afford.  The only way obviously that you will be able to afford this car is through a loan.  The problem with this is that you start to see your pay slip as a source of credit.  I recently talked to a group of young people and many of then admitted to me that they had even started to evaluate job offers based on the amount of credit that the pay slip could extend to them. There is a young man in our current class who joined a multinational and started earning a salary of Shs 70, 000. He immediately bought a second hand Subaru at a price of one and a half million shillings through a car loan.  Servicing the car loan costs a whooping Shs 35, 000 per month.  This means he only has Shs 35, 000 to live with. Obviously he was not buying the Subaru to stay home.  There is a whole entertainment lifestyle that accompanies the Subaru and at the young age of 25 he has gotten himself in a cycle of debt and even borrowing at times to pay rent.  Just because of a Subaru! Don’t get me wrong. There is nothing wrong with the Subaru.  I happen to really like them by the way.  It’s just that he was not in the phase of his life where he could actually afford one. This does not mean you don’t buy a car. A colleague of mine bought a car for Shs 60, 000 and fixed it up for another Shs 100, 000. With the same Shs 35, 000 being used to service the loan, you can save for 5 months and buy this car in cash. His pay slip leaves him enough room to live and do other things. There are reasonably priced options even if you choose to buy a car. Don’t start off on a rocky foundation in the name of an image.

You are now earning money so you want to move out of your parents’ house. Yes, you will have to move out at some point but unless you are being kicked out of the house do not rush the process. Yes, if you are moving from pocket money of five thousand shillings a month to a salary of Shs 40, 000 you may think it is a lot of money and you can now take care of yourself.  But with this fresh excitement, you may forget what you were not paying for at your parents’ house.  Obviously you were not paying rent but also food, electricity, water etc. In addition there are things you will have to buy like furniture. These are things that you may not have considered and do not make the mistake of financing this with debt.  So before you rush to abandon “home”, please do a budget.  You will get a very clear picture on what you need to live by yourself and then you can think through the options or how long it will take for you to be able to move out.  For some people it may not be an option.  For example, you may have gotten a job out of the town you grew up in. However it does not mean you get an expensive place to live.  You can even share with other people for a while.

Lastly, small things add up. If I look back to when I was in this age group that I am now trying to address, I wish someone had pointed out to me that the lunch I was buying everyday at three hundred shillings would add up to nine thousand shillings per month.  Nine thousand shillings per month is Shs 108, 000 per year. If you are spending roughly the same on anything per day, remember this can at least partially fund a car, is a couple of months of rent, can buy furniture and most importantly for this age group, can be invested.  Investing doesn’t happen later when you have a lot of money it starts with what you have now.  This lunch money invested and reinvested properly for 10 years can add up to over two million shillings. The small money really counts.  Even if you don’t have the income you would like to have, you can probably find two to three hundred shillings a day.  Remember the small money counts.