People starting out in their careers often focus on the here and now while ignoring the future when it comes to finances. As you climb the ladder of success, you tend to think that the raises and promotions will endlessly continue. It can seem like you have forever to plan for the future.
As millions of Baby Boomers will tell you, the future comes faster than you can imagine.
While there are lots of financial mistakes we can make, here are six that are common and avoidable. If you’re starting out, know the pitfalls, and maximize your chances of avoiding them.
Mistake #1: Not Planning for Retirement
Retirement seems like a lifetime away, but the only way to make sure that you have what you need to retire is to start planning early. This is probably the most common mistake we make in our 20s and 30s. It is also the easiest one to avoid. If you start saving for retirement when you get your first job, even if it’s a very small amount, you will establish the habit as well as start to build savings.
Short-term goals, like a new car, can overshadow what seems like the very long-term goal of retirement. However, it’s wise to get your priorities straight early on so you’ll reap huge benefits. As Suba Iyer, a financial writer, said, “When I started my first job. I thought retirement was too far away and I should be saving for some immediate needs like getting a car. The end result: I didn’t save for retirement or a car or anything else. I just spent my entire salary.”
Mistake #2: Spending Too Much on a Car
Speaking of cars … that’s something that trips us up when we’re young. While it may make financial sense to buy a new car, be careful not to buy more car than you need. A flashy and expensive car may be tempting, but keep your long-term goals in mind and choose a car that serves your current needs without sabotaging your savings.
Mistake #3: Not Using a Budget
Unless you are fortunate enough to have parents who explained what a budget is and how to use one, you may have no idea where to start.
You may look at a budget as something you don’t need because you are not making enough money, Or you may see it as something that will restrict your spending or is just too much trouble. However, a budget can help you at any level of income and can even give you financial freedom because you can see where you are spending. And they’re less trouble than you think. It can be as simple as tracking money in and money out. As you make more money and your expenses get more complex, you can customize your budget from there.
Mistake #4: Overusing Credit
While most people know that credit cards can get us into trouble, it is very easy to fall into the debt trap. You start carrying a little balance on your credit cards and it builds up. You may then have to dip into savings to pay your credit card bills.
Avoid this situation by using credit sparingly and only for identified and planned purchases. Implement a plan to save for major purchases and pay for most, if not all, of them in advance. “Start shifting your mindset so that debt no longer seems normal and stop creating new debts,” says entrepreneur Andrew Josuweit in a recent Forbes article.
Mistake #5: Having No Emergency Fund
For the same reasons we tend to skip proper retirement planning, we also skip saving for emergency situations. In our 20s and 30s, we tend to think we’re invincible, but illness or job loss can happen at any time. An emergency fund should cover your expenses for at least three months. Financial Experts recommend keeping $1,000 available for financial emergencies and 3-6 months in savings in case of a job loss or medical illness.
Mistake #6: Not Having Adequate Health Insurance
While health insurance is expensive, it is short-sighted to skip this vital component of your financial portfolio. Just one hospitalization can get you off course and cause real financial hardship. Health insurance is not optional, and young people are the first to ignore this rule. The cost may seem prohibitive, but it comes back to priorities and future planning.
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Contact Blair Tyrell, our financial advisor who can help get you on your way!