The young Infotainment Influencer, ‘Jay Kapoor’ shares his experience stating that; when it comes to money, we will all have to admit our educational institutions have done a very bad job at educating the young citizens of our country. The environment outside the schools and colleges isn't of much help either. Given that money is such an important part of our lives and understanding and managing it is one of the first steps of adulthood. The abysmal financial literacy in the country and the lack of reliable sources to learn from makes it worse.
While you are in school, everything follows a certain order over which you have little or no control. Everything from your schedule to your finances is outsourced to schools or parents. But once you leave home, it could be for a job or for college. You find yourself in a world of chaos, where you are supposed to be responsible for every decision of your life. Managing your own finances and being responsible for them becomes even harder given the lack of training and information. People end up making mistakes, mistakes that are too common and with little prior knowledge are easy to avoid because it's good to learn from your mistakes. It's better to learn from other people's mistakes. So here are common pitfalls that you must avoid early in your life for better personal finance management:
Not making a Budget
One of the most common mistakes people make is not making monthly budgets. It's the most common phenomenon of how your salary disappears with you having no clue of where all of it went. Making a budget enables you to allocate expenses and saves you from being a victim of impulse shopping. One of the biggest problems that come with digital transactions is that you don't remember where all of it goes and you actually end up spending more. The most basic thing you can do to avoid this is to make a monthly budget and stick to it. It does not mean that you don't spend any money at all. It just means that you become smart about your money. The most commonly used Golden rule for budgeting is the 50-30-20 rule where 50% of your money goes for essential things like food, rent, electricity bills, etc. 30% goes for your additional spending like going out and buying stuff. The rest of the amount can be either saved or invested. You can play around with the percentages and find what works for you, but making a budget, tracking your expenses and sticking to it is very important.
Not investing in themselves
One other mistake that has recently become quite common is that young people get into investing and markets too early. They understand the value of saving and then want to use that saved up amount to invest in markets. It could be the get rich quick dream that lures them or just how the world of investing is presented on the internet. But early on in your life it's much better to invest that saved amount on yourself, than to try and time the market right for quick gains. Those quick gains or profits might look enticing in the shorter term but when you look at it with a larger perspective, investing in yourself will give you more returns. So, the amount of time you would invest in studying the markets is better utilised in upskilling yourself so that you can bring in more money and then eventually get more from the market. In no way does this mean that you should not save or invest, but rather utilize the maximum of your time in investing in yourself.
Impulse purchasing
When you are young and are earning a decent amount, it's quite natural to want to buy a new phone or a new car. It could just be because you want to rise up the societal hierarchy or just think that buying that thing could make you happy. Most of these purchases are depreciating in nature, what that essentially means is even though that car might get you a lot of likes on social media and make you popular among the friend group but the moment you step out of the showroom, its value drops. And the most important part of the story is that did you really need the car? Are you going to utilise it daily and if yes, how much return on investment will it give you. These could be a lot of questions to ask yourself, but these impulse purchases or purchases that are depreciatory in nature should be made only after giving a lot of thought. The best thing one could do is accumulate more assets and try to minimise the liabilities.
Debt Early in Life
Getting a loan for a house, Car or education is easy today. Companies are willing to hand out loans but a debt early on in life is the last thing you want. The debt comes with a huge responsibility of repaying it and that means your future choices could be limited because of that. This is not to scare you, but before getting a loan ensuring a repaying plan is very important. This does not mean that you should never get a loan if you have a proper plan and think that the loan gives you the required monetary leverage, you should take it.
Credit Cards
One other common piece of advice that you'll get is to never get a credit card. Credit cards are misunderstood and there is some truth to their bad name. If you spend credit card money on things you don't need and end up buying a lot of stuff, it could spell trouble. Credit Card loans are charged above 40% and that could be bad news. On the other hand, using a Credit card the right way could help you in earning rewards, discounts, building the right spending behaviour and improving your CIBIL score. There are multiple types of credit cards available that could give you additional discounts on your most common expenses. You just need to be cautious of how you use it and don't end up falling into the trap of buying now and paying later.
There are a lot of other things that you need to be mindful of in your financial journeys. Essentially, if you understand debit-credit, budgeting and the importance of saving and investing, you are good to go. There's no end to learning and you could deep dive into financial resources as much as you want but ensuring a good basic understanding of things will make everything easier.