Biggest Money Mistakes Youngsters Make and How to Avoid Them

Landing your first job is exciting. Not only are you starting a new phase in life with new responsibilities, but you are also making money for the first time. While the prospect of a steady income is quite lucrative and there are a plethora of options for making use of that income, most young professionals tend to make certain textbook errors when it comes to managing their finances. Some of the biggest money mistakes you can make as a young professional can cost you, not just more money but also financial opportunities. From ignoring sound investment opportunities and avoiding personal loans to fulfil financial goals to make the same traditional investment choices as your parents, young professionals can make several common money and financial mistakes. Let’s learn about some of the biggest money mistakes people make when they are young and let’s also figure out how we can fix them.

Putting Stock Market Investments on Hold

Investing a significant portion of your income in stocks and securities can go a long way in funding your financial goals. Young professionals in their mid-twenties often avoid stock market investments simply because they don’t understand the workings of a stock market or find the investment options to be high risk. Starting early can allow you to make small mistakes, learn more about securities markets and beef up your confidence, so by the time you are nearing your thirties, you can actively invest in stocks and securities.

Making the same Investment Choices as Mom and Dad

A young Indian professional who has just started to make some money often has the guidance of their parents or a parental figure for advice on investing their income. But you must remember, not only have times changed, the options for investments have branched out significantly. Investment options that worked for your mom and dad might not be as suitable to your needs. Moreover, your financial goals might be different from theirs. So, while it is always advisable to have a small amount of money invested in a savings account or a fixed deposit, make sure it is just a few months worth of your salary. Any investment advisor worth their salt will tell you there are plenty of other options to invest your income than just traditional savings accounts and fixed deposits.

Impulse and Trend Buying

Ask any young professional and one of the top purchases on their wish list will be a swanky new car or an adventurous motorbike. Both are depreciating assets and can be avoided in your twenties. Other trend-based purchases include smartphones and gaming systems or designer clothing - everything purchased because they are in vogue. Very often, we don’t realize how impulse buys or the purchase of depreciating assets can prove to be overly expensive in the long run.

Living by Yourself

Your twenties are meant to be frugal so that your thirties can be comfortable. So if you’re just starting in your career, don’t be averse to flat sharing. Young professionals can save quite a lot of money when the cost of rent and utilities is shared with other young professionals. It will also give you a good idea of how to manage your money well.

Too Many Credit Cards

You’re making money and sure the banks will be lining up to offer you a shiny new credit card - one that will be suited to your new spending ability. But there is such a thing as too many credit cards and accumulating credit card debt will not only lower your credit score, it can also put a damper on future financial plans. While a single credit card and responsible spending is wise, too many credit cards and using credit cards to pay off any personal loans or debt is never a good idea.

Avoiding Loans

Most of us have been raised to believe that loans must be avoided at all costs. But a loan can prove to be very helpful in specific situations. People who are just beginning their careers have fewer responsibilities so they can focus on paying off education loans or even short term instant personal loans. Instead of borrowing from family or friends (which can be demotivating or even embarrassing), you can pay for any additional expenses with an instant loan on a considerably low rate of interest. This is a much better option than credit card debt which can cost you a whopping 42% in interest annually.

What should you do? 

For starters, don’t panic. It’s normal to make financial mistakes when you are just starting. But once you get the hang of managing your money better, things should start flowing smoothly. In the meantime, consider your options in terms of good investment choices; debt management; spend wisely and try to avoid overly splurging; and finally, your twenties are meant for you to enjoy your new-found financial freedom, so if you are short on funds and want to take that trip to Goa with your friends, don’t be afraid to avail of a personal loan. They are easy to repay, they don’t cost you a lot and they teach you to be financially responsible.