Sayan Biswas, Negosentro | Young professional starting out on their careers usually tend to be careless with their finances, misguided by the thinking that they will learn better financial management skills when they earn more money.
This leads them to making costly financial mistakes like living beyond their means and getting into an unending cycle of debt, failing on their debt and credit card repayments which in turn lowers their credit scores. These mistakes will affect your personal finances in both the long and short terms.
Here are some common money mistakes that young professional make.
Lacking a budget
A budget is an important financial tool to keep track of your income and expenses. Without one, you are likely to be careless in your expenditure and more often than not, you will find that your expenses exceed your earnings.
It is important to have a realistic budget and strictly adhere to it.
Impulse buying promotes a system of financial indiscipline which may ruin your finances in the long run.
Buying an item you hadn’t planned for because your peers have it will lead you into borrowing money to keep up with them every time they have a new purchase.
Understand your finances and plan your expenses. Spend money only on items you absolutely need.
Depending on a single income
There is a tendency among young professionals to get too comfortable when their employers pay them an acceptable salary to maintain certain living standards.
Many don’t see the need to have additional income streams which they could invest and increase their wealth portfolio.
There are many ways to make some quick money on the side that doesn’t affect your daytime job. For instance, instead of checking out ways to Delete Uber Account when you no longer need their services upon buying a personal car, become an Uber driver during your daily commute to earn some cash for gas and other expenses.
Having too much debt
Being saddled with a huge amount of consumer debt like student loans, mortgage and car loans is a precarious financial position to be in.
Debt repayment ties up your cash and it is important to develop a plan to pay off all your debts as soon as soon as possible.
Avoid borrowing money to finance your lifestyle, and if you must borrow, pay back promptly to build your credit score. Defaulting on your loan repayments will negatively impact your credit score and financial institutions will lend you money at higher interest rates – that is if they are willing to lend you money in the first place.
Instead of taking advantage of the compound interest factor to grow their savings and earn better returns, many young professionals choose to live from pay check to pay check with little money saved for investment or a rainy day.
This leaves them with nothing to live on should they have an emergency or lose their jobs.
They also don’t start thinking about saving for retirement because it seems so many years far away yet with time on their side, they could build towards a comfortable retirement with minimum contributions to a 401(k).