Question

I will be finishing university next month and know nothing about financial planning. What should I prioritise?

Answer

Start with the only asset you already own that can pay for everything else — your future income.

South Africa’s social safety net is thin. If you can’t work for a while because of illness or injury, you will suffer financial hardship. So, your first move is to protect your future income stream.

Protect your income

Most of us underestimate the lifetime value of our monthly pay  cheques.

For example, if you earn R20 000 a month when you start work at the age of 21and have this increase by 5% a year until the age of 65, you will have earned R 38 million during your working career.   This ignores any salary increases that you would have received as you move up the corporate ladder.  This is a massive number and that is why I say that your ability to earn is your biggest asset — and the first thing to protect.  This is done through taking out insurance cover – usually called income protection.

It is usually cheapest and easiest to secure disability and income protection cover while you’re young and healthy. Many insurers offer attractive terms for graduates. Look for a guaranteed insurability option so you can raise cover as your salary grows without fresh medicals.

While you’re at it, put the other essentials in place: a medical aid (at least a hospital plan) with gap cover for specialist shortfalls; short-term insurance for your car and contents and a simple will.

Invest correctly: think in three buckets

Once your income is protected, give every rand a job and a time horizon. I like to use a simple three-bucket framework because it prevents you from raiding tomorrow to fund today.

• Bucket 1 is short term (0–2 years).

 Its purpose is to provide stability and access. This is the money that keeps you going through surprises and near-dated costs: moving cities for a job, deposits, replacing a laptop, or surviving a retrenchment. Keep it in a less-volatile unit trust or a high-interest savings account you can reach quickly.

Aim first for one month of core expenses, then build to three to six months. Your Bucket 1 size should inform your income-protection waiting period: the stronger your buffer, the longer you can afford to wait for benefits (and the lower your premium).

• Bucket 2 is medium term (3–7 years).

This is for goals like: a reliable car upgrade, a deposit on a flat or seed money for a small business. Use a balanced fund where professionals blend equities, bonds, property and cash. While there will be ups and downs, time does the smoothing of these movements. Automate the debit order and name the account after the goal so you’re less tempted to dip into it.

• Bucket 3 is long term (7+ years).

This is the freedom engine: retirement and big, far-off goals. I like to use two types of investment here

A retirement annuity (RA) allows tax-deductible contributions up to SARS limits.  The investment growth is untaxed inside the wrapper and  access is restricted, which is a feature, not a flaw, for future-you.

A tax-free savings account (TFSA) offers growth and withdrawals that are tax-free within the annual and lifetime limits.  This pairs well with an RA because it’s liquid and tax-efficient. You don’t have to choose one forever. Most young professionals do a bit of both over time: RA for discipline and tax efficiency, TFSA for flexibility without tax friction.

Even if money is tight, you should still start.

Two truths apply across every income level:

1. habits beat amounts
2. insurability is bought with health, not income. You can increase premiums and contributions later.  There is always the danger that  you may not always qualify for cover later.

Graduate financial planning isn’t about predicting markets – it is  about sequencing decisions that buy back time. Protect the income first. Separate your money by time so emergencies don’t cannibalise investments. Start small but start now—and let compounding and good habits do the heavy lifting while you build your career.