It’s vital for young people to understand the importance of investing from an early age if they want to build wealth, says Pieter Willem Moolman.

One of the most important questions that they are faced with in the start-up phase is how much debt is normal.

While debt can be a remarkable tool, I believe it should only be offered to people who can treat it with respect.

For instance, incurring short-term debt to finance household items and clothes can be financial suicide in the long run.

Unfortunately different types of debt are readily available to consumers, even if they cannot afford the repayments.

Short-term debt – which includes credit and store cards, personal loans and hire purchases – is bad debt and should be avoided.

The second type, medium-term debt, should not exceed 20% of your household income. An example is vehicle finance over 54 or 60 months, including maintenance and insurance costs.

Long-term debt, like home loans, can be seen as good debt – if you can afford the repayment and other costs relating to the property and still have excess money to save.

From the above it is evident that debt can be a good thing, but only if you treat it with the necessary respect. Incurring debt to buy luxury items in effect means you cannot afford it.

For long-term capital growth, buying shares is one of the best investment approaches. Youngsters should try to get into the share market as soon as possible and can do so through a stockbroker or buying unit trusts or other investment products.

If you want to save a fixed amount every month, the unit trust route is the most cost-effective and accessible option. Share investments should however not be used to meet short-term goals as they tend to be volatile over the short term.

Investing or saving is not easy, but it’s actually a simple concept: spend less than you earn every month and be disciplined to save the balance. Financial guru Warren Buffet’s words – “Don’t save what is left after spending, spend what is left after saving” – are particularly apt.

Property is the most difficult asset class to discuss because, in most instances, a home is a lifestyle asset and not an investment. You don’t earn income from it and it only costs you money.

A bond is however a forced monthly saving if you lack financial discipline. The reason your parents think property is such a great investment is because it’s probably one of their only forced savings and they’ve benefited from the power of compound growth.

Buying to let is another option to be considered as you use the bank’s money to create wealth, but the admin surrounding it could be time-consuming. Other property investments that can be considered are listed property companies.

Furthermore, every person needs a cash safety net for emergencies. I suggest you keep two months’ expenses in an emergency fund like a money market account or accessible home loan.

The combination of the above asset classes needed in each person’s portfolio may vary due to circumstances.

Pieter Willem Moolman is the owner of PWM Financial Management in Port Elizabeth. Visit or phone 041 582 3034.