Graduation feels like the end, but it’s actually the beginning of your new life as an adult. You may be starting a real job and living on your own for the first time, meaning you’re also getting serious about money. Even if you don’t think your salary is significant yet, you can set yourself up for success starting with your first paycheck by making smart decisions. You’ll make some mistakes along the way, but it’s vital to avoid the common pitfalls that could profoundly affect your future.
Buying What You Don’t Need
One of the easiest ways to jeopardize your financial stability is by buying things you don’t need. It isn’t just blowing the budget on designer clothes or an expensive trip; for most people, the most damaging expenditures are small indulgences that add up. Evaluate what you spend on convenience habits like eating out, picking up your daily latte and paying for grocery delivery, and consider reducing or eliminating those expenditures. Many things you think are essential are actually luxuries and don’t belong in a sound budget.
Accruing Too Much Debt
Many people rightly feel that certain debts are a necessary evil. However, it is possible to spend too much when it comes to basics like car or home loans, so carefully consider the overall cost rather than what you can afford in monthly payments. Opting for thrifty choices like purchasing a used vehicle or a smaller home will free up your income, allowing you to put those thousands of dollars saved into an interest-bearing account.
Most importantly, stay away from credit card spending as much as you can. Factors like high interest rates and the temptation to overspend can easily snowball into a mountain of trouble. Simply put, if it isn’t necessary for survival and you don’t have the money for it, don’t use a credit card to buy it.
Thinking About Retirement Too Late
When just beginning your career, it seems like you’ll have forever to think about retirement, but the time to plan is while you’re young and have the bulk of your earning years ahead of you. Consider custom financial planning to learn what options are right for you at this stage in life.
One retirement many companies offer is a 401(k) plan, which deducts money directly from your paycheck and invests it on your behalf. Companies typically match a certain percentage of your contribution, essentially doubling your money before it’s even invested. Through the magic of compound interest, your nest egg will grow exponentially along with the healthy markets, making it a useful tool for many people to painlessly accrue wealth.
If focusing on the long game seems like a waste of time now, remember that the sooner you start making your money work for you, the less you’ll have to work for your money when you’re older.
Striking out on your own is an experience like no other, and becoming financially independent for the first time is an education unto itself. Do your best to avoid common mistakes or risk learning some expensive life lessons.