21-Jan-2019 written by : FSI-Team
Managing personal finance isn't easy. However, young professionals who don’t have a lot of experience in that often make mistakes that cost them a lot (no pun intended).
Most people learn the basics of credit score and the various roles it plays in their financial and even personal lives when they actually need a loan or credit card. Since young employees don’t usually need to take loans in the first few years, they don’t care to build their credit score. However, the initial few years are the best time to take care of that because then by the time they need personal loans or home loans, they have a high credit score which can help them get the loan easily and that too at affordable interest rates.
For a large number of young employees, the expenses are a lot more than the available income. However, it’s understandable as when they are just starting out, they have modest salaries. So, to finance their needs and luxuries, many use credit cards.
In general, using credit cards isn’t bad. In fact, finance experts recommended the use of credit cards and personal loans as they help in building credit. However, if you use credit cards too much so that your debt grows considerably and your credit utilization is excessive, it can hurt your credit score. Unfortunately, many young employees are unaware of this and use credit cards without understanding its impact on their credit rating.
India is known for its “big fat Indian weddings” in which money is spent liberally to achieve supreme extravagance and lavishness. Since young professionals don’t have enough savings of their own, they often take wedding loans to fund their weddings. However, it can have serious repercussions including their names being put on loan defaulter list and deterioration of mental health due to financial pressure.
If you want to get married when you are still young, then it’s strictly advised that you have a modest and simple wedding. Starting a new life with your partner along with a huge financial burden will only come in the way of your happiness.
If you want to be financially secure, then develop a habit of creating a monthly budget as soon as possible. It will go a long way in preventing debt and building a high credit score. Besides, there are a variety of expense and budget management apps today that can simplify this process for you.
When you have a fixed monthly budget, then you don’t overspend. In fact, you can save a certain portion of your income every month which can serve as an emergency fund for dire situations like when there is a medical emergency or if your name is about to be added to a loan defaulter list due to missed EMIs, etc.
While it’s certainly a good idea to save your money in a savings account, it’s even better if you use some of it for popular investments like mutual funds, fixed deposits, stocks, etc. which offer high returns compared to a standard savings account (around 3.5% to 4%). However, you want to start with low-risk investments like fixed deposits and then move to high risk-high yield investments like mutual funds and stocks.
Many young professionals don’t really care for health insurance thinking it’s a waste of money. However, investing in a good insurance plan is actually a smart idea and even offers tax benefits.
Since the premium cost of a health insurance is the lowest when you are young, delaying the investment is simply a bad move and not recommended.
So, these were some of the. If you are making any of these mistakes yourself, then make sure that you act soon. Good luck!