For many young adults, money-related matters can feel like something that’s too “mature” to think about. The truth, however, is that it will be better for your future if you start learning how to handle your money responsibly as early as you can. If you don’t, you may develop habits and make mistakes that can negatively impact your financial health.
If you’re in this stage of your life and need a bit of guidance, below is a list of common financial mistakes that you should avoid:
Not Learning How to Budget – Once you start earning or making your own money, the first thing you should do is to come up with a budget. It doesn’t matter how much your salary is or how minimal your expenses may be; it also doesn’t matter whether you use a smartphone app, an electronic spreadsheet, or a notebook and pen. The most important thing is to know how much of your income is left after you’ve paid for your necessities. Not having a budget can lead to excessive spending and makes you less accountable for your actions. It’s not wrong to spend on yourself, per se, but it’s also not a good idea to pour all your remaining money on discretionary expenses. By tracking where your money goes, you can make adjustments to ensure that you have money for things like investments and emergency funds (which will be discussed in more detail later).
Being Afraid of Loans – When you’re young, the idea of taking out loans may seem a little daunting. There are also plenty of stories about people drowning in debt, which can further discourage you from borrowing money. However, as long as you’re directing the money towards a specific purpose, loans can actually be a good thing for your financial health. As an example, you can use the proceeds of the loan to enroll in a training program where you can get a certification that’s needed for a higher job position. This then increases your earning capacity, which gives you more financial freedom. If you want to get used to the process, start small by using a loan app Philippines’ consumers trust. The loans you can apply for are usually smaller, so you’ll have an easier time managing your finances.
Charging Everything to Your Credit Card – Having a credit card is like having access to a pre-approved loan. It can be tempting to use it for everything, especially if you’re earning rewards points for every purchase, but this is generally a bad idea. Usually, credit cards have higher interest rates compared to other types of loans. When you aren’t able to pay the full balance ASAP, this interest will rack up and you’ll end up paying so much more than the cost of what you bought or paid for.
To maximize your credit card, use it only for specific purchases or bills and make sure to pay off the entire balance on or before the due date. If, for any reason, you can’t pay in full, do your best to settle more than the minimum due. This way, you can pay the debt a little earlier and avoid additional interest charges.
Ignoring the Need for Insurance and an Emergency Fund – Emergencies can happen at any time. You or a loved one might get sick, or perhaps the computer you use to accept jobs as a freelancer might conk out unexpectedly. You need to be ready for these situations; otherwise, you’ll find yourself panicking—which certainly won’t help you resolve the crisis. A good way to prepare is to get health and life insurance as early as you can. The younger you are, the lower the premium payments will be and the earlier you will finish paying things off. You should also start building your emergency fund as soon as possible. Include these items in your budget plan, so that you always have money to put into these accounts.
Following Every Trend – Toys? Sneakers? Gadgets? There’s always a trend cropping up and society can pressure you to also try these things. Giving in as an occasional, well-deserved treat for yourself can be good for your morale. When you do it all the time, however, you may end up with a mountain of debt. Keep in mind the advice of many financial advisors: live within your means. If you can’t afford something but you really want it or if it’s not an urgent need, consider saving up instead of splurging. You can also wait for sales to save some money.
Not Having Financial Goals – Last but not least, not having financial goals can affect the way you handle your finances overall. You may even end up mismanaging your money. By having something to focus on, you can direct your efforts and achieve what you want. You don’t even have to have a long-term goal right at the outset. While it’s ideal, it may be a little overwhelming. Start with some short-term ones, like saving enough money for a new smartphone or growing your emergency fund by Php 2,000 every month. The key is to get started ASAP so you can gain momentum.
We hope these tips can help you on your journey towards financial wellness. Good luck!
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