It is quite normal for young professionals to be on a high after they have completed their studies and started on their first job. The financial freedom to do whatever they like with their salaries can be quite heady and when compounded with the fact they have very little responsibilities in this stage of their lives, it generally leads to spending without any restriction. Most ignore the fact that this is perhaps the best time to lay the foundation of a financially secure and healthy life. Many young professionals feel that it is far too early for them to be concerned about financial matters as a result of which, they usually make mistakes that have them ruing their profligacy thereafter. Some of the most common mistakes made by young professionals in the matter of personal finance:
- Not Preparing a Budget
While making budgets is among the most common activities that young professionals engage in their professional lives for their organizations, sadly when it comes to their personal finance, it seems to be completely ignored. As a result, they end up spending all their money but are unable to figure out where it all goes. Making a budget is extremely useful as you can prioritize your spending and allocate different amounts to essential heads like food, shelter, transportation, build up a reserve fund for medical emergencies, unexpected spends, vacations, and plan for the acquisition of assets like a car, appliances or even housing. Without a proper budget, you will never know if you have sufficient money for all your requirements.
- Falling into a Debt Trap
Contemporary advertising is so persuasive that it can be very easy to get into the habit of swiping your credit card to get all the goodies home, enjoy fancy dining and entertainment, and go off on vacations to exotic locations. Within no time, you will find yourself swamped by credit card statements and scrabbling around to even making the minimum monthly payment on time. In the meantime, the principal amounts continue to attract very steep interest rates, as a result of which it can take years to bring the dues to zero. Being trapped like this can severely constrain your financial freedom as well as negatively impact your credit rating to find out how you can make your life easier.
- Ignoring the Impact of Small Expenses
It is a very common habit for young professionals who are flush with funds not to keep any track of small expenses simply because they think that the expenses are too small to be tracked and do not have any major impact on their lives. On the contrary, they will be shocked to discover how much they are actually spending when they add up these small expenses that can easily deplete their wallets if they are not conscious of them. Perhaps the best way of keeping track of these expenses is to maintain a notebook or a spreadsheet and note down the daily expenses as they occur. A review at the month-end will help to open your eyes and take appropriate action to avoid them.
- Not Having Any Financial Goals
Even though it is evident that you only have a financially secure life if you set out financial goals for yourself, most young professionals really don’t seem to care about savings and objectives and only live from day to day. From the day you get your first employment, you should decide what you want in your life and plan to finance these goals. It is not necessary that you have to do everything out of your savings; even by using a proper and manageable amount of loans, you can achieve your objectives. For example, if you want to buy a house, you should plant for the mortgage. As diverse as your goals may be, you can plan everything out and then go about developing your career so that you can meet those objectives in the timeframes that you have set out.
- Investing Too Much in Depreciating Assets
A large number of industries like cars, bikes, electronic appliances, fashion, etc. thrive because of the huge interest of young and financially-independent professionals who buy them in very large numbers to support their lifestyles. However, most of these assets decline in value continuously and often sharply after they have been purchased so they are actually a drain on your financial resources even if they are very exciting and enjoyable to own. If you allocate a certain portion of the funds available to you on buying assets that tend to appreciate, you will be far better off after some time. Typically, these assets comprise property, company equity, and financial products, or rare items like stamps and collectors’ items. However, you should only invest if you are knowledgeable about these asset classes or take the advice of professional advisors.
- Spending Beyond Your Means
Of all the mistakes that young professionals make, the one that typically lands them into maximum trouble as far as their personal finance goes is the tendency of spending more than what they earn. This happens essentially because while they know what they earn every month, they have no idea about their expenses and every expense seems quite minor when compared to their salaries. Being blasé about their expenditures due to the absence of a proper budget and set-out financial goals is extremely common but at the end of the day, it leads to them facing a mountain of outstanding loans that can easily overwhelm them for long periods of time. Living your life on plastic money can give you a high but is usually accompanied by a fall that can cripple you.
As a young professional, you should develop prudent and disciplined financial habits so that you can enjoy life to the maximum and build for yourself a financially secure future where you can live a worry-free, comfortable and financially-independent life. Making a proper financial budget, developing practical and achievable financial goals, and staying away from profligate spending are some of the most obvious ways that you should practice from the very early stages of your career.
John Bell has been writing articles on Social Media, skilled business consultant and Financial Adviser for the last few years. In this post, he has written about the benefits of Social Media Marketing, Business, Finance as well as the features related to the same.