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Congratulations, you’ve landed your first full-time job! No longer do you have to rely on the wages from part-time work or – if you’re lucky – an allowance from your parents. However, with the privilege of earning a salary comes a responsibility – sensible money management. Many young adults (myself included) enter the working world wanting to achieve, among other things, financial independence. But too often, we stumble – falling into the potholes of poor money management that can affect our future.
Let’s look at some of the more common mistakes – and how you can avoid them.
Partly because we live in a world where everyone wants to keep up with the Joneses, a lot of young adults fall into the trap of spending more than they earn. The need to keep up an image of lifestyle may be important to you now, but incurring serious debt from a young age is a sure-fire way of derailing that financial freedom you crave so badly. This can be avoided by creating a budget that you stick to (more on that later).
Aside from spending too much, many young adults aren’t saving enough either. While some choose to save for short-term things (such as holidays, deposits for properties) they aren’t thinking about the long-term – i.e retirement. No one wants to struggle when they’re older. It’s a time to unwind and enjoy your golden years, so money problems should be the last thing on your mind. Not only will saving for retirement from young instil discipline – but it has financial benefits, too. The earlier you start saving, the longer your money has to grow and work for you. This means you’ll receive a better return on your money when it’s time to clock out for the last time.
Another important thing that we often avoid doing is creating a budget (and importantly, sticking with it). It may not be particularly fun, but it is an essential part in personal finance and good money management. It may feel as if you’re limiting yourself – and therefore not enjoying your money – but again, it teaches discipline and may actually reduce any financial stress you may have. What’s more, if you budget wisely, you might have extra money left over each month. This is handy for those unexpected emergencies – and great if you want to add a little something extra to your savings pot. But remember, it’s not just enough to create a budget, You need to stick to it. Often, we splurge a little more than we should. This means either dipping into our hard-earned savings – or worse, resorting to debt and credit.
Lastly, and this is a drum I’m constantly banging, but start an emergency savings fund. It is imperative when living in a world as tumultuous as this. Life is unpredictable. You never know when your car will break down, geyser will burst or a medical expense will rear its ugly head. Having a financial cushion to soften the blow is not only helpful, but keeps your finances on track as it doesn’t affect your budget or savings. Most financial experts recommend having six months worth of expenses saved up. This is difficult though, so try to aim for at least three months. Should anything happen, you’re covered for a decent amount of time.
Perhaps you were never interested in money management or perhaps you were never taught the basics. Whatever the reason, it’s never too late to start educating yourself on the basics of money management and personal finance. Understanding how easy it is to fall into debt or drive yourself off the path of financial freedom is the key to really gaining control over your financial life. What’s more, seek professional advice when it comes to your finances and keep learning and seeking education on the subject matter.
Have a question about share investing? Write to me at [email protected].
- Clawing your way out of debt – On the Money with Jarryd Neves
- How to apply for a home loan – On the Money with Jarryd Neves
- Highlighting the importance of emergency savings – On the Money with Jarryd Neves
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