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5 Money management bloopers that you should avoid

  • Highlights

  • Build a great portfolio by avoiding these mistakes

  • Save 20% of your monthly income for investments

  • Prioritise Life Insurance & Health Insurance

When you’re young, it is natural to feel excited about earning money, and perceiving that there is plenty of time to learn the essentials of saving or investing for the future. This sensitive situation leaves youngsters susceptible to taking some financial missteps that impact their financial future.

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Here are five common money mistakes, along with solutions for young professionals.

5 common mistakes youth make with money

Usually, the biggest financial mistakes are also the most common, and could cost you in the long-term. Here are some of the common mistakes made by most of us, in our initial financial years.

1. Thinking that the future is distant

Many young salaried professionals do not start saving early and ignore gains of compound interest. Thinking that they have ample time in hand, very few take the investment route seriously, even when they start saving.

Some of the risky consequences of not saving early for retirement are:
i) Drowning in debts with inability to plan for the future
ii) Unpreparedness for large, unexpected expenses
iii) Downsizing and being unable to support your own financial needs
Instead of landing in such trouble, make a financial plan. You can always start investing with limited amount of money, and make it grow.
With age by your side, you would be able to make a financial plan work for you with a chronological advantage.

2. Depending too much on family and relatives

Even after they start working, Indian youths tend to be financially dependent on their families. Though this culture of parents and children having a special bond is beautiful, too much financial dependence makes youth believe that they have a fall-back option in case of financial problems.
This may lead to financial missteps and lack of flexibility in your life choices. It may make you procrastinate your financial plans and be unable to explore high-return investment options for better financial security.

Additional Read: How To Manage Your Money More Effectively

3. Going on a spending spree

It is natural to be extravagant with expenditures when you have just started earning. This pushes your extravagance to the peak, and your inclination towards investments is hence, non-existent.
Peer pressure may be one of the most important reasons why youngsters end up purchasing high-end items without a dire need for them or a decent bank balance! This over-indulgence may make young professionals rely heavily on credit cards and push them towards debt burden.
Very few young professionals follow the advice of saving at least 20% of their monthly salary for investment on future essentials such as retirement or insurance.

4. Failing to factor in inflation

Since they live for today, most of the youth do not think of investing for the future. They do not take into consideration that the prices of certain goods and services appreciate over time, and that savings alone won’t increase their purchasing power.

5. Not having financial protection

Another universal error made by youngsters, is not protecting themselves with enough financial cover. Life insurance and health insurance are not on their priority list as very few think of these as protection measures for unforeseen circumstances that could drain their earnings.

Four Financial Advices for Millennials

5 solutions for youth to become money-wise

1. Being honest about your financial situation: Be open about what your actual net worth is and what your current liabilities and assets are.
2. Determine your wants and needs: Remember that what you desire is not always what you require. Here’s what you can do:
i. Create a list of your requirements and desires
ii. Divide these into short-term and long-term needs
iii. Prioritise and set goals, so you can start working in the right direction

Additional Read: 5 Money management bloopers and solutions for the youth

3. Do not remain financially illiterate: Start with little self-education and familiarize yourself with the investment schemes out there, factoring in inflation, taxation and professional fees of those who are helping you.
You can also read up some books to help you plan your finances better. Browse the Internet for valuable financial advice or consult elders who can guide you for planning your finances better.

4. Know where your money is going: Stop using a credit card mindlessly, and start tallying your spending every month. See how much you have in every bank account you own, how much you’re saving and what and where you have invested.
5. Start saving for your retirement: It must be repeated that it is never too early to think of your retirement. If you can sign up for a retirement plan on your first job seize the opportunity and start early.

Learning about how fixed deposits work is one of the best ways you can be financially disciplined no matter how young you are. Start getting more organised about money and invest in a secure Fixed Deposits Scheme that offers high interest and safety.

DISCLAIMER: The mentioned fixed deposit interest rates are indicative only, and may be subject to change periodically. Please check the interest rates on our website.

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