After the excitement and celebration of graduation has ended young professionals are expected to leave college and take on a new role, with new responsibilities, and join the workforce. Sadly this is a time when they often make many money mistakes. This time of leaving familiar places and friends behind can be especially traumatic when coupled with the extra responsibilities of bills and mounting debt which need to be dealt with.
While it can be an overwhelming there are some simple, practical tips graduates and other young professionals can follow to help them avoid making basic budgeting errors. Avoiding these money mistakes in the first place will build a strong foundation for future financial independence and success.
Here is a summary of the top money mistakes people make and how they can be avoided:
- Spending too much
- Ignoring debt
- Not saving anything
- Unnecessary spending
- Not valuing yourself high enough
After spending several years living moderately as a student it is very tempting to spend money as quickly as it arrives. Upgrading your apartment, décor, car and other non-essentials is a trap many fall into. We have a natural desire to want to upgrade our surroundings to meet our new lifestyle, from simple gadgets to make things easier to overhauls of your wardrobe. However, this is dangerous behaviour and the hedonistic approach leaves you no future flexibility should the amazing job you just landed (or loan from mum and dad) not last indefinitely.
Instead try to prioritise and rationalise the things you need. Assess the real value of the item you want to buy over a longer period, sure it might look great now but in 6 months’ time will it need replacing or upgrading anyway. Avoiding instant gratification can be personally satisfying and instead reward yourself when you have done something which deserves recognition and avoid splashing out on any old thing which takes your immediate fancy.
Debt in itself is not a problem, but bad debt is. A well-managed debt with a low interest rate and a plan to pay it off can help you out of difficult financial times and give you the freedom to make your next move. Many credit cards even offer periods which are completely interest free.
Ignoring your credit rating is one of the money mistakes many people make. After the recession in 2008 ‘Credit’ got a bad name, when in fact not having cards or accounts allowing you credit can hamper your future ability to get bigger credit items such as mortgages – which almost everybody needs in order to buy a house. Therefore a better plan would be to gradually develop a good credit rating with one or two cards or accounts which you pay off in full at the end of each month. This shows the credit rating bureaus you are a good and reliable customer who will be trusted with increasing amounts of credit and therefore spending power. Also should the need arise you will be in a better position to get credit for a new car or other large expenditure.
Since students now graduate with thousands of dollars of debt it is extremely important that you get to grips with this burdon as soon as possible. Ignoring debt will not make it go away, instead it will hang round your neck like a lead weight and can impact your self-esteem and lead in some cases to depression.
Forgetting to save
When your income is still only just lasting until the end of the month or perhaps even falling a little short, it can be difficult to imagine saving any. However, this is a serious money mistake and getting into the habit of saving money as early in your personal financial career as possible can really pay dividends in the future. Firstly the good habit will be established and secondly it is surprising how just saving a little each month can add up. Industry advice is to save up to 3 months salary; this gives you the freedom to pay for some emergency or much more fun go away for a few months unpaid when you need a break from this working world to see what you really want to do with your life.
There are also employer sponsored plans which can help by matching your savings contributions and seeking the advice of a financial advisor can help you determine the best account to suit your personal circumstances.
When you do not think about how much you are spending and on what you can easily fall into the trap of spending a lot of money on little items: meals out, take-away coffees etc. It doesn’t take much planning to take a homemade lunch into work and you will be amazed at the cost savings in a few short weeks.
So stop making this money mistake and determine exactly where your money is going. Accounting for all your spending, especially when you spend cash, can help you identify your spending habits and brining your awareness to where your money goes will help you make changes. Allowing yourself occasional luxuries and treats will even feel more special when they are only occasional.
Selling yourself short
Avoid the common money mistake of selling yourself short. Although we are well aware of the dire situation the economy is in it is actually starting to recover and slowly business are beginning to see and upturn in sales and therefore profits. These profits should be rightfully ‘fed’ back to the employees whose loyalty and hard work has helped keep the business afloat during difficult times.
Asking your boss for a raise may seem a little indignant – you should be lucky to have a job right? Wrong. Asking for a raise shows how confident you are in the quality of your work and also shows some keen business savvy on your part. Getting practice as early as possible in negotiating this delicate topic will stand you in good stead for all future financial or salary negotiations.