Young people should make wise financial decisions early in life to ensure they are not impacted by financial missteps committed in their youth.
There’s nothing as exciting as getting your first salary and realising that earning an income opens up many possibilities. However, this should also be the time to step back and start thinking carefully about your finances and what you want to achieve from earning an income. During this stage, every financial commitment should be carefully considered because how you start off will have a direct impact on your finances in the long term.
It’s quite common to see young people getting excited about earning money and then begin to take on too much debt to accumulate possessions they often don’t need, without having made provision for saving.
Here are some of the common financial mistakes that young people must avoid:
By creating a budget, you will be able to plan your expenses and keep an eye on what your money is spent on. A budget can help identify any wasteful spending because it’s designed to help you track your expenses and ultimately commit money to areas that take priority. Discipline is important but there’s no harm in making room for entertainment now and then to reward yourself for hard work later.
Taking on too much debt
When you suddenly have access to credit, it may be difficult resisting the temptation to just spend, but remember that debt is a major financial commitment; therefore it’s better to take on debt that you can manage and not feel overburdened. By taking on too much debt you may find yourself not being able to cope with repayments. It’s better to focus on saving money and earning interest on it instead of unnecessary debt.
Not having an emergency fund
An emergency fund is designed to cover shortfalls when an unexpected expense occurs. A medical emergency or a car breaking down can have a huge impact on your finances and if you don’t have funds for unplanned expenses you may end up relying on debt or having to tap into your other savings.
Delaying saving for retirement
The best time to start saving for retirement is when you are still young because any delay might cost you more in the long-term. While you might think there’s enough time to save for retirement, it’s always better to save as soon as you start earning an income. Starting early will most likely help you make building blocks towards a comfortable retirement, ensuring that you benefit from compound interest and keeping in line with the depreciating value of money.
The road to financial freedom comes with self-awareness and financial discipline. Arm yourself with as much information as possible before making any financial decisions, in this way you avoid making mistakes that can possibly compromise your finances in future.