After months of toiling through projects and assignments, you finally land in your first job. The first job is the first step in the real world. Gone are the carefree days where you could easily bunk your classes or give proxy attendance. Your job gives you a sense of freedom and you may be tempted to fulfill all your wishes that you could not fulfill while studying such as buying an iPhone or buying Bose speakers. While it is okay to indulge once in a while, it is also important to avoid these money mistakes in your 20s.
When you first earn money, you may be tempted to spend on a lot of things. Some of these things may be beyond your means. One of the most important secret in building wealth is to live within your means. We may think that everyone else is having a great time.
Once you get a job, credit card companies will be lining up to offer credit cards. Credit cards lets you buy things without having to pay for it upfront. Using your credit card for buying luxury items on a month on month basis is not a very good habit and it can ruin your financial health and your credit score.
Read: How to Apply for Kotak 811 Credit Card Online
Here’s one major money mistake that people in their 20s make: not keeping a track of our money. Many a times we make small transactions and purchases which we don’t track. Although these transactions may seem small, it can have significant impact in your finances in the long run. Keeping a track of your expenses is important for your financial health. It can help you to spend less by tracking your spending pattern. You can also check whether your spending is in lines with your priorities. Tracking helps you to understand your financial habits and make changes to them accordingly.
Read:How expense manager apps can help to manage your finances
Insurance is one of the essential financial products for everyone. Insurance will safeguard your family and your loved ones in any unfortunate event. A term or life insurance is a must for people with dependents. You may think that you don’t have any dependents and hence you don’t need life insurance right now. Wrong. Buying a life insurance when you don’t need it is a very wise decision as you can land with a higher life insurance cover at a nominal rate. It is cheaper for women and non-smokers.
At the beginning of the career, it is only natural that you save a little portion of your salary that is left after paying the bills and everything else. As time passes, you will realise that you are hardly able to save any money at the end of the month. One way to go about it would be to plan your savings and investments. Instead of saving the money that is left at the end of the month, take a proactive approach and start saving a particular sum of money every month.
Attaching goals to your savings will help you to stay focused and disciplined in your savings. An easy way to start saving is by opening a savings account solely for your saving purposes. Now you can open a digital bank account like Kotak 811 in a matter of few minutes. Let us take for example that you want to buy the new version of iphone or a mac book. You can save couple of thousands every month towards this goal. Planning will give you a sense of purpose and once you are able to fulfil your small goals, you will be inspired to achieve other bigger goals and plan for it accordingly.
Use a goal calculator to know how much you would have to invest every month to reach your goals comfortably within the desired time frame.
Postponing investments to a later date is one of the biggest mistakes that people who recently joined the work force. Although it is okay to spend on luxuries for two or three months, starting investing as early as possible is the best for your financial health. It is because time is in your hands and you can derive the maximum benefits from the power of compounding.
Let us see how postponing investment by just one year can do to their overall investment corpus. Rajashree started investing right after she got her first paycheck. As she was a fresher in IT, she hardly received Rs.20,000 as a monthly salary. However, she managed to invest Rs.5,000 every month after paying rent and her other bills. On the other hand, Adrija earned Rs.30,000 every month but she was not able to invest a single penny in the first year of her employment. Assuming that both of them had invested Rs.5,000 every month at 12% rate of return, Rajashree would go on to accumulate Rs.13.59 lakhs in 11 years while Adrija would accumulat Rs.11.50 lakh in 10 years. This indicates that Rajashree is better off by Rs.2.09 lakh just by starting one year early.
To summarise, your 20s can be a great learning experience. Learning on the job and taking care of your finances should be the key objectives in your mind. By avoiding these money mistakes in your 20s you can stay on track and fulfill your financial goals on time.
