Congratulations on landing a first job. It is surely an accomplishment and a milestone. But the reality is that getting a job is just the first step. Managing money is as crucial as earning it. Salary management will help in saving a good amount, and then investing it in the right place to build wealth.
However, people often make mistakes that are common but can cost them a lot. Let us understand these mistakes and see ways in which they can be avoided.
1. Bad Budgeting Practices
- Not Making a Budget:
- Unplanned expenses and impulsive purchases result from the lack of a budget among many first-time earners.
- To properly distribute your income, use the 50-30-20 rule or budgeting apps.
- Not keeping Emergency Funds:
- Spending your entire salary each month is not a good practice in the long run.
- In an emergency, you will have no backup.
- Make sure your emergency fund is sufficient to cover three to six months’ worth of expenses.
- Ignoring Minor Costs
- Online food delivery apps have come up with a creative strategy of sending humorous notifications to attract the customer’s attention.
- These small purchases quickly mount up into a huge corpus, which can be a big part of your expenses.
- Examine your weekly spending by establishing spending barriers or terminating unused services if you’re overspending on subscriptions or food delivery.
2. Financial Planning Delay
- Postponing Insurance Protection
- Assuming nothing will happen, many people do not opt for health insurance.
- The truth is that medical crises can happen at any time, and without insurance, it can be heavy on the pockets.
- Purchase a personal health insurance policy, even if your employer provides one. Research the plan that suits you best, then opt for it.
- Not Making Investments Right Away
- You gain more from compounding the earlier you begin investing.
- Individuals often hold off on investing until they have more money or focus on spending first and saving later.
- It’s a wise decision to begin investing in mutual funds with as little as Rs. 500 a month through a SIP (Systematic Investment Plan).
- Falling For Quick Gains
- Young earners are frequently drawn to cryptocurrency, social media stock tips, and multilevel marketing.
- This results in losses from high risk and little knowledge.
- It is advised to invest in regulated securities like RDs, PPFs, and mutual funds in the beginning and later move towards riskier options.
3. Thinking Short-Term
- Failure to Establish Financial Objectives
- Without objectives, money is frequently spent pointlessly.
- This causes a delay in starting major life events like vacations, further education, or asset purchases.
- Establish both short-term and long-term objectives and follow it.
- Avoiding tax planning
- In order to save money on taxes, the majority of people wait until March and wind up purchasing arbitrary insurance or policies.
- To avoid this, acquire knowledge of Section 80C, 80D, and 10(14) basic deductions if you are opting for the old tax regime, as these are not available under the new tax regime except for the standard deduction.
- Estimate liability and make plans from the first month, and use online tax calculators.
- Excessive Spending on Lifestyle Improvements
- This is a typical case where the individual focuses on frequent weekend parties to purchasing iPhones on EMI.
- Avoid impulsive purchases and adhere to the “one large purchase per quarter” rule.
4. Misusing credit cards or taking out unnecessary loans
- Bad credit management at the beginning of your career can lead to long-term financial difficulties.
- Many first-time earners take personal loans for things like shopping, vacations, or gadgets without realising the repayment burden, or they use credit cards to finance a lifestyle they cannot afford.
- This mistake severely affects your ability to obtain future loans or even rental agreements.
- It is suggested to avoid loans unless they are necessary for productive purposes like skill development, health care, or education.
- Responsible use will help you establish a solid credit history, and your future self will appreciate it.
Bottomline
The conclusion can be drawn that receiving your first salary may give you happiness, but it is momentary. It is a long way that lies ahead. Spending excessively in the first few days and not paying any attention to investment and saving can prove to take things downhill in the long run. It is essential to acknowledge this common mistake and then follow the advice to avoid unnecessary trouble.
Plan your finances from the very start to yield the fruit of it later in life.