In essence, the term young professional commonly refers to people in their 20s-30s working in any profession or a white-collar occupation. It is a general notion that young professionals who have just started their professional life usually face a lot of challenges in terms of managing their personal finance.
There are essentially two reasons for this:
- One, they come to terms with relatively low pay when they’ve just begun working, which becomes challenging to manage.
- Second, it takes a certain amount of time to get a grasp of the real-life expenses and handle them responsibly.
Most young professionals have a feeling that their financial career has just started, and therefore, they have a lot of time to dwell on personal finance decisions and planning.
However, there are ways how one can dodge personal finance mistakes.
This post will guide young professionals to recognize the financial mistakes, and ways they can overcome the errors. If you want to know more about why this is the time you should focus more on your finances, read our previous blog here.
Mistakes committed while managing personal finance
When it is about finances, we all make mistakes and poor decisions, especially in our youth. There is a dire need for young professionals to organize and manage their personal finances. If you do not have prior knowledge about the financial mistakes one could make, then it is best to refer to an expert like EarlySalary. Here are the most common personal finance mistakes that people make while earning in their early 20s and 30s.
- Spending more than they earn – One of the most widely made mistakes is spending more than your income. In an ideal situation, you should spend in such a manner that while your needs are met, you can also keep aside a certain amount as your savings and emergency fund. Overspending every month will hamper your financial stability in the long run.
- Falling into the debt-trap – In recent times, young professionals are drawn to the idea of quick success without thinking much about the probable drawback of that. Once you fall into the debt-trap in your early career years, it will become exceedingly difficult to bring back your personal finance on track.
- Making investments in depreciating assets – Most young professionals are seen to be interested in assets that are depreciating like cars, trendy gadgets, bikes, expensive clothing, etc. Instead of investing in depreciating assets if the same money is invested in appreciating ones like bonds, gold, securities, and land, then the amount you invest will come back to you along with the interest amount.
- No long term financial goal – Financial goals should be set and outlined as soon as a young professional starts earning. For a fact, you cannot manage your personal finances without knowing where you finally want to stand financially. Personal finance is closely related to having proper financial long term goals.
- Misuse of credit cards – The connection between a credit card and young professionals are almost unbreakable. Young professionals take credit cards for granted and misuse them for any purpose. Owning a credit card is not a bad idea but using it carelessly is a notable personal finance mistake of young professionals.
Ways to avoid personal finance mistakes
Knowing how to dodge personal finance mistakes can be a tricky task, especially if you are just getting started in your career. Following a few simple points can significantly help you in dealing with your personal finances. Below are five ways young professionals can avoid making personal finance mistakes.
- Have a personal budget – Planning a budget is the first step towards managing personal finance. Unfortunately, most of the young professionals overlook the importance of a monthly planned budget. You need to know how to adjust your budget in times of crisis. An ideal budget will help you understand how you should spend our money throughout the entire month. A budget is the most beneficial tool to gain control over your personal finance.
- Focus on saving and investing – It is difficult to come across young professionals who are interested in saving and investing. Since at this period, you earn more while responsibilities on you are less, it is the best time to invest and save. Later you may earn more; however, your responsibilities and financial liabilities will also increase.
- Plan before getting a loan – A major mistake that young professionals make is going ahead with opting for a loan, without prior planning. Doing this can cause them to lose out on their personal finance while repaying the loan. Young professionals must research lenders before opting for a loan. One of the trusted lending platforms to consider is EarlySalary.
- Don’t ignore small expenses – There are several small expenditures which young professionals keep on making, believing that spending small amounts will not result in a huge change in expenses. It is the biggest mistake one can make. Small but consecutive expenditures are the masked enemies who will hit your wallet without your knowledge.
- Get an understanding of taxes – Filing income tax might be difficult for many new young professionals. At times, they make several mistakes that later on reflect on their personal finance. Not filing your income or investment creates lots of confusion while filing for returns of income tax.
A critical point that young professionals need to remember is that you don’t require a fancy degree or an impressive educational background to avoid making personal finance mistakes. If you know the common mistakes and ways to prevent them, then you can very efficiently manage your personal finance. Knowing the pitfalls and their escape will not only help you with your personal finance but will also guide you to have a more secure long term financial success plan. However, managing personal finance is a challenging task, and more than often, you could feel the need to seek professional help. It’s here that the role of a specialized financial service provider like EarlySalary comes into play. We offer a wide range of financial assistance to put an end to the financial worries of young professionals like yourself!
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