I recently talked to a group of young people and many of then admitted that they had even started to evaluate job offers based on the amount of credit that the payslip could afford them. PHOTO| FILE .
One of the things many people say when they finish the Centonomy programme is that they wish they knew all the things they’ve learnt in the course before.
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 young people are signing up for the programme.
In some of the calculations that we do, people have all the reasons to envy the younger participants.
Today let me speak to this younger generation. You may be close to graduating, entering your first job or still early in your career. Below are some of the mistakes you may be making that will have serious consequences in the future.
A DECENT CAR FOR A DECENT SALARY?
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 for the kind of car that other people will admire versus the kind of car 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 payslip as a source of credit.
I recently talked to a group of young people and many of then admitted that they had even started to evaluate job offers based on the amount of credit that the payslip could afford them. There is a young man in our current class who joined a multinational and started earning a salary of Sh70, 000.
He immediately bought a second hand Subaru for one and a half million shillings through a car loan. Servicing the loan costs a whopping Sh35, 000 per month.
This means he only has Sh35, 000 to live on. Obviously he was not buying the Subaru to park at home.
There is a whole entertainment lifestyle that accompanies the Subaru and at the young age of 25 he has gotten himself into a cycle of debt; sometimes he even has to borrow money for rent.
All these for 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 shouldn’t buy a car. A colleague bought a car for Sh60, 000 and fixed it up for another Sh100, 000.
With the same Sh35, 000 you would use to service a loan, you can save for five months and buy this car in cash. His payslip 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 image.
On to the next mistake: 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, do not rush the process.
Yes, if you are moving from pocket money of Sh5, 000 a month to a salary of Sh40, 000 you may think it is a lot of money which you can now use to 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 or paying for food, electricity or water, etc. In addition when you move out, there are things you will have to buy like furniture. These are things that you may not have considered, but don’t 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.
If you get a job out of the town you grew up in and have to move out of home, don’t make the mistake of getting an expensive place to live in. You can even share a house 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 addressing, I wish someone had pointed out to me that the lunch I was buying everyday at Sh300 would add up to Sh9, 000 per month.
That comes to Sh108, 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 won’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.