6 Common Personal Finance Mistakes Young People Make
1. Excessive Social Spending
This is the most common mistake made by many young professionals. Social pressure and consumer culture of flaunting assets is the main influence behind this mistake. Young professionals see the need to keep up to date with trends and care about their image. Frankly speaking, there is nothing wrong with taking care of one’s image. However, it should not be at the expense of compromising or delaying your personal finance plans. The pressures of buying the latest iPhone or holidaying extravagantly will leave you at the losing end of personal finance. Avoid giving into societal expectations.
2. Impulse Spending
A classic example of impulse spending is walking into the supermarket with the intent of getting a carton of milk and walking out with more than your intended purchase. A relatable example would be spree buying on Amazon. We live in a time where it is convenient to shop online. However, do you really need that add-on product in order to get a discount or free shipping? These are sales gimmicks by sites to get you to spend more than you need or should. Impulse purchases are not necessities and often leave people living beyond their means. Avoid sales gimmicks.
3. Not knowing how to avoid the Debt trap
This is a real phenomenon that affects more people than we think. Young professionals often fall into this trap. According to the Money Statistics May 2019 report, the average UK household has a credit debt of approximately £2,655. The median salary of a fresh graduate in 2020 is said to be £2,500 monthly. The household credit debt is $155 more than a fresh grad’s income! Isn’t that alarming? Very. Remember, do not spend more than you can afford. A credit card is meant for cash flow, not as a money provider that provides money you do not have. You will fall into this trap and it can spiral. If you can’t afford that Armani suit for Friday drinks or a brand new Giuletta, don’t cave. Don’t forget, you have bills to pay all year round! Debt can accumulate and bills stop for NO ONE.
4. Lacking financial literacy
Financial literacy lacks in society. The biggest compounded return does not come from bonds, stocks or even real estate. It comes from education. Yes, young professionals tend to be highly knowledgeable, but education doesn’t stop, ever. Financial literacy specifically is not just something learnt over night or from a textbook. It comes from exposure and experience as well. Most millionaires in the United States were not born millionaires, they learnt how to build wealth. The more they learn, the more they understand the world. The easier it is to connect dots, the more money they make.
You do not need to go to university to educate yourself on the financial world—we live in the era of technology. Answers can be found in mere seconds over the internet from almost any device. Acknowledge you do not know everything. Do not be afraid to seek advice. Recognise something can be learnt from everyone.
5. Miscalculating how much you save
If by the end of the month you transfer £250 to your savings account, have you saved £250? If you answered “Yes”, keep reading - this article is for you.
Spoiler alert: The correct answer is NO.
6. Giving Up
When things get messy, people often give up. Shit hits the fan, mistakes happen. What’s important is learning from mistakes and moving on. Don’t let one malfunction deter you from venturing further on your journey of personal finance. It is a never-ending lesson and with experience, comes ease.
Remember, this is your journey and never fear asking. No one will care about your personal finance the way you do. So if you don’t care, who will? Start today, it’s never too late.
If you would like to take your personal finance to the next level, here is a list of the most important things to know about personal finance. Good luck!