The choices made in youth can have an immense impact on the road ahead. Not adequately equipped to handle money matters at that age, many young people end up making financial mistakes that they often regret later in life.
Having a sound financial strategy in place when you are young can pave the way for a smoother and secure future.
With no liabilities or family obligations, people in their 20s or 30s are best placed to save & invest, but, quite to the contrary, saving/ investment is the last thing on their minds. Read on for the 5 most common financial planning mistakes youngsters make.
Misusing Credit Cards:
Credit cards are a huge attraction, given that they are almost a status symbol at this age, besides the convenience that they bring to spending. As a result, youngsters tend to apply and keep multiple credit cards which indirectly encourages spending beyond one’s means. Consequently, they are unable to pay off their credit card bills in full, and end up paying only the only minimum due amounts. They hardly check their monthly statements and end up paying high bank charges / interest rate on the revolving credit amount used by them. The interest levied keeps piling over time, resulting in it becoming a substantial debt burden.
Too many EMIs:
Thanks to the easy availability of loans and the convenience of paying through EMIs (equated monthly instalments) available for practically everything, the temptation to grab that latest gadget or take that international cruise is hard to resist. Several young adults therefore, end up indulging in impulsive buying which can dent their budget and turn into a severe problem over a period of time. The interest rates on these EMIs are steep, and youngsters unknowingly walk into a debt trap because of being financially vulnerable.
No Emergency Fund:
Setting up a contingency or an emergency fund is one of the key elements in financial planning and budgeting. Most youngsters make the mistake of ignoring this element altogether. Once you start earning, putting aside a small amount from your salary every month can help build a stash that will come in handy for a rainy day.
In the absence of this, you will have to dig into your savings and investments or worse still, borrow from others, when an emergency or an unexpected event suddenly crops up.
Inadequate Insurance Cover:
People in their 30s are in prime health and therefore, shrug off health insurance, believing it to be a waste of money. Being young, active, and fit, they feel that health insurance / hospitalization cover needs to be taken only when one is older. This is a popular misconception and is a mistake on many counts – i) health insurance is actually cheaper when you are young ii) health insurance is easier to get at a young age within minimal medical tests etc. and you also get the benefit of carrying forward your health insurance history in subsequent years. iii) illness and hospitalization are not necessarily only age-related and hence can hit you out of nowhere!
With the sky-rocketing costs of hospitalization and medical treatment these days, lack of or inadequate health insurance can wipe off your saving in a jiffy.
The 20s and 30s is a carefree period of life. A lot of young people live only for the moment, splurging their earnings on “living life to the fullest” via activities like shopping, dining out, and more. The idea of saving or making investments is often pushed to ‘later’, because they aren’t left with any monies after all their indulgences.
While it’s important to enjoy the present, it’s equally important to save for a financially secure future, and a head-start making investments can reap rich dividends in the twilight years.
These are some of the common mistakes that youngsters tend to make. If you are conscious of these, and can avoid these mistakes, you will be in a better position to secure your future, financially.
So, save and invest your income smartly from an early age. Start now.