Have you recently graduated out of college? Whether you’re still looking for a job or have just landed one, you need to be aware of the dangers of overspending and profligacy. While your first paycheck might tempt you to fulfil some of your life dreams, the importance of financial planning early on in your career can’t be overemphasised.
Starting to plan and invest carefully will save you a lot of trouble going forward. These aren’t habits that can be inculcated easily. Reckless spending in addition to price inflation and depleted value of assets can pile up a whole mountain of debt.
When you’re a graduate fresh out of college and with a job, financial planning is much easier because you’re probably not encumbered by a whole list of high-interest loans and other commitments. Planning for your rainy day from the beginning will also help you maintain a good credit score, an important determinant in the future approval of loans.
Some Common Financial Mistakes That Hurt You the Most
When you juxtapose two of the most overused maxims – “Failure is the pillar of success” and “Failing to plan is planning to fail”, they might seem contradictory. While the importance of making mistakes and learning from them can’t be undermined, recklessness and ignorance can’t be condoned.
Your devil-may-care attitude and belief in self-indulgent philosophies like YOLO can land you into major crisis later on in life. Not having a plan to counter future emergencies could spell a doom for you. The following are some of the most common problems of financial mismanagement early on in life:
Not Saving Enough
When you receive your first paycheck, you may suddenly have an irrepressible urge to splurge on expensive dresses, eat out at fancy restaurants, and drink at upscale bars with friends.
While discovering financial independence for the first time in life can make you a little thriftless, going overboard can make life difficult. Hence, it is advisable that you start saving up from the very first month.
Apart from your investments in CPF accounts, you can look to set aside 15% of your take-home salary every month in a separate savings account with the sole objective of saving for the future. Looking at the automatic transfer route may be a wise option. The best way to achieve this is to transfer a portion of the money from your salary account into the savings account at the end of each month.
It is important to have a contingency fund that you can turn to for major crises rocking your life. Instability in the labour market and global economy mean that you can become jobless at the blink of an eye. Try to train your mind to look beyond the present.
Not Investing Early
Investing early allows your money to grow as it gets more time to multiply. Instead of waiting till your twilight years, start investing in stable and less risky financial instruments early. Start investing in equity-linked unit trusts, growth funds and ETFs for stable returns over a number of years. You can find out more about the top fixed deposits in Singapore on BankBazaar Singapore.
However, don’t be impetuous. Margin trading, options trading or currency trading should be avoided or postponed for later years when you have accumulated enough wealth and have developed a better understanding of the financial markets.
Growing your own funds will also reduce your overdependence on loans, thereby saving you a lot of money you would have otherwise spent on servicing your debts.
Not Choosing Your Credit Card Wisely or Taking Too Many
While financial institutions will consider you to be an “unknown risk” in the absence of credible credit history, taking too many loans too soon could lead to debt accumulation. Many lenders would approach you with their credit cards as soon as you get your first paycheck, but choosing the one that addresses your concerns best is important.
Annual fee, rate of interest and loyalty rewards are some of the most important parameters based on which you can choose a card. Don’t forget to go through the fine print of the offer document carefully before making your decision.
Taking Too Long to Repay Your Student Loan
If you have taken a student loan to pursue your studies, you should start paying it off as soon as you get your first salary. After the grace period ends, not making minimum payments every month will not only make you a defaulter but also affect your credit score and risk rating. The more you delay repaying the loan, the steeper the rate of interest will become, making it nigh impossible to completely pay down the outstanding balance.
Not Buying a Health Insurance While You Are Still Young
When you’re young, the premium for your health insurance will be much lower than when you grow older and have a number of health complications to deal with. Most insurers will also reduce premiums on subsequent renewals, taking your good health and young age into consideration.
Don’t make the mistake of ignoring this important aspect of your life. You never know when you will need assistance to deal with a health emergency.
While keeping a check on expenditure and shoring up your funds are important, you should also start to look for avenues that allow you to maximise your income. Invest in marketable skills and avoid stagnancy at one job. Implementing these ideas will hold you in good stead in the long run.