Starting your career and receiving your first paycheck is a big milestone in your life. As you enter the workforce, you’ll have new responsibilities, work with colleagues, and follow instructions from your superiors. Along with these changes, you’ll also have access to your hard-earned money.
However, with this newfound financial freedom comes the responsibility to manage your finances wisely. It can be tempting to spend impulsively and seek instant gratification, but it’s crucial to find a balance between enjoying your earnings and planning for the future. As a young earner, it’s important to understand the value of money, the significance of budgeting, and the importance of saving. Let’s explore some financial mistakes you should avoid early in your career.
- Impulsive spending: When you start earning, you’ll have access to your own money. While it’s okay to celebrate your first job and the income it brings, it’s important to be mindful of impulsive spending. Avoid buying expensive luxury items like branded clothes and high-end smartphones. Also, resist the urge to buy a vehicle immediately after starting your first job. Rent is a major expense, so it’s advisable not to spend more than 30 percent of your income on rent. Consider sharing accommodation or living in a paying guest arrangement instead of renting a flat with a high security deposit. Managing your hard-earned money wisely is crucial for financial stability and making the most of your earnings.
- Insufficient savings: Being financially prudent goes beyond avoiding overspending; it involves developing a habit of saving and investing thoughtfully from your very first paycheck. Financial experts suggest saving or investing at least 25 percent of your salary. However, personal circumstances can vary, so the percentage may be higher or lower depending on your family’s financial situation. The key is to start the investment process early and increase the amount as your income grows over time. Set financial goals for yourself, such as building an emergency fund equivalent to three to six months’ worth of living expenses. Begin by saving around 10 percent of your monthly salary and gradually increase the amount as your income increases. Allocate a portion of your income for retirement savings, long-term investments, short-term goals, and debt repayment.
- Lack of understanding about taxes: It’s important to know that your salary may already have undergone tax deductions through TDS (Tax Deduction at Source) by your employer. However, you may be eligible for a refund for a portion or all of the TDS through effective tax planning. Certain investments and expenses qualify for deductions, reducing your overall tax liability. Declare your investments and expenses at the beginning of the financial year to avoid unnecessary TDS deductions. Plan your investments strategically to maximize deductions and potentially receive a tax refund. Explore tax-saving options such as mutual funds, Public Provident Fund (PPF), and deductions for medical bills or home loan interest payments. Educate yourself about various tax-saving investment options in India and utilize them to optimize your tax liabilities while building wealth.
Also Read: Upgrade Your Credit Card: Increased Financial Freedom.
- Excessive debt: Once you start earning, you may become eligible for credit from financial institutions. However, it’s important not to take on too much debt simply because you’re eligible. Avoid accumulating excessive debt from credit cards or personal loans. As a rule of thumb, your credit card dues should not exceed 30 percent of your monthly salary. Live within your means and avoid taking on debt that you cannot afford to repay.
By avoiding these financial mistakes early in your career, you’ll be better equipped to manage your finances, save for the future, and achieve your financial goals. Remember to seek advice from a financial advisor or use online resources to enhance your knowledge about tax planning and investment strategies.