Financial planning for young adulthood

Remember being very young and wishing to be an adult? Well, some of us have come to find out that our ideas of adulthood at that age were just a fantasy. Life has taught us that being an adult can be a rollercoaster ride full of not only excitement but also of confusion, anxiety, huge responsibilities, making difficult decisions and hard work.

We have a sad reality of high unemployment rates in our country. It seems that many years ago no one considered that even university graduates could possibly face the challenge of not being employed. Historically, having a higher education or post-secondary school education guaranteed us having secure employment. However, the times have changed.

As we look further into what makes today more challenging to find employment and life as an adult, we can start to notice what broke the well-running machine that once existed in our country. For every end there is a beginning and for every progressive system there are challenges.

As a nation, we still have a high regard for education, however our education system is either terribly broken or was never tailored to us as Batswana. Our system is broken in both the pre-secondary (primary and secondary) and post-secondary (university) education phases. What if the main objective of our pre-secondary education phase was to pass down knowledge about our history, culture and wisdom to the next generation? What if the main objective of our post-secondary education phase was to nurture gift sets and encourage creativity to solve our challenges? As we do not live in a vacuum, what if we had these as main objectives (indigenously rich knowledge) together with other secondary objectives to learn more about the rest of the world (knowledge from other countries)?

Another aspect we can now notice is that we desperately need to bring back or replace the transitionary systems we once had in place. We used to be proud of our cultural practices of Bojale and Bogwera. Not only are these practices discontinued, the critical knowledge and wisdom they provided was also left behind. Maybe this knowledge and wisdom could still assist our journey into adulthood today.  

We also used to have a mandatory transitionary system from higher education institutions to Tirelo Sechaba before going into the workplace. With Tirelo Sechaba no longer compulsory, we now have a large and growing gap between higher education and technical skills (inclusive of soft/life skills) required for employability. This transitionary system used to assist our country in keeping track of the challenges we were facing and our progress in overcoming them with education whilst strengthening a graduate’s CV with work/volunteer experience.

Employment and income are clearly important components of adulthood. As we are faced with employment challenges early into our adulthood, we really need to re-evaluate and repair the whole system leading up to and involving employment. Adulting is not for the faint-hearted because there is always a mountain to climb. But let us hold on tightly to our hopes and know that we will be okay. They say that life does not get any easier, we only become stronger.  

Our financial planning topic for this week is FINANCIAL PLANNING FOR YOUNG ADULTHOOD. Remember that the concept of financial planning is broad to ultimately involve efficient and effective resource management. Not many adults are aware that our expectations of adulting today are highly influenced by the need to achieve the same or more resource achievements and/or resource benefits as our previous generations without the consideration of the change in the mode of exchange (currency). The pressure can be overwhelming at times. On the bright side, the pressure can be eased by viewing our financial planning from the base of P-S-M-L at any time: Protect – what we currently have; Sustain – current standard of living; Multiply – our current resources; and Legacy – securing our achievements to be beneficial to our future generations.   

With the focus on young adulting individuals, better known as youth or millennials, from the age of 18 years to 35 years, we can use a P-S-M-L base together with lifecycle financial planning.

Protect

It is typical for a young adult to not fully own many major assets such as vehicles and property. However, we do often seek credit or debt to fund the acquisition of these assets. The financial planning components involved in protecting what we currently have include debt management and a short-term asset insurance policy.

We need to be careful to not accumulate more debt than we can handle. Having a debt management strategy will ensure us complete ownership over our currently debt-funded assets in the coming years. Having a short-term insurance policy for our vehicle and property will assist us in managing the risk associated with our assets (such as damages from accidents, fires, rains, earthquakes, and theft) and help protect our assets until we can independently build up enough funds to cover these risks.

Sustain

Adulting comes with many challenges of increasing living expenses, job hunting, an entry level job that pays way too little and a very tight budget. Therefore, many of us find ourselves barely surviving from payday to payday rather than true living. The financial planning components involved in sustaining a decent standard of living include:

·      an emergency fund – to have a financial safe haven for unexpected events such the loss of a job or to cover medical aid or insurance gaps

·      a life insurance policy – to protect our families and dependents from any financial burdens that may arise in the event of our death

·      a medical aid or insurance – to maintain good health (physical, mental and emotional) into our old age

·      a retirement fund – having either a pension, provident, preservation or retirement annuity fund lets us take advantage of time and the many years we hope to have to be able to live well in our old age

·      and budgeting – to track our income and spending as we cannot afford to waste any resources

Multiply

Many of us aspire to have a happy life, peace, wellness, a higher pay check, a better standard of living, financial stability, financial freedom, expand our families, go on vacations and so forth. Therefore, we need create more room for growth. The financial planning components involved in multiplying our current resources include:

·      a savings account – to build up funds for a specified project or achieve a short-term goal

·      a diversified investment portfolio– to cast our net out into the ocean to catch more fish. The aspects of balance and diversity are very important when it comes to taking up any type of investment (such as shares, equity, property and so forth)

·      and entrepreneurship – to have multiple sources of income as well as have a stable flow of income

Legacy

Most of the time in financial planning, we build a realistic picture of what we hope to achieve in our many years into the future (finish line) and we work backwards to where we are now (starting point). This is a dynamic process that allows us to identify and put in place practical objectives to achieve our ultimate vision. The financial planning components involved in leaving a legacy for generational wealth and succession planning include: A will; and a funeral policy or arrangements – to avoid our families from experiencing the financial burdens associated with our final departure from this life.

Having a valid Will achieves the purpose to make sure that our wishes regarding our assets are met and most importantly protect our families from any confusion in the event of death. Not many of us have kept the inheritances from our own parents such as a property (cattle post, farm land and a plot in our home villages). Some of us have sadly gone as far as selling off our inheritance in the pursuit of a glamourous city life. However, not only was there no consideration to market price, the money we acquired was at a loss and does not take us far.

We can notice that financial planning from a P-S-M-L base perspective makes it better to understand how the many different components of financial planning can work together. Incorporating lifecycle financial planning into our base perspective, we can also notice that Protect and Sustain take more priority in the life of a young adult.

Life is a journey that can be short or long. The challenges will keep coming but we will get stronger to overcome them. For millennials climbing up the corporate ladder: “You don’t get your foot in the door to stand at the entrance, you get your foot in the door to access the staircase or elevator”. Think of everything you do, are you still standing at the entrance of the building or are you climbing up the stairs to the control room? Lastly, as a result of financial planning, taking calculative and intentional steps to achieve a vision of substance can get us there much faster.