Depending on personal circumstances and objectives, many people have different ideas about what it means to take money seriously. Nonetheless, it is usually advised to begin forming sound financial practices and realising the value of money at a young age. The late teens and early twenties are known as young adulthood, and this is a critical period to lay a solid financial basis. Studying basic financial concepts, such as debt management and investing, is advised.
For long-term security and success, you must make informed financial decisions. Forming sound financial habits as a young adult is crucial since it can help you have a safe future. The following are some typical financial errors you should avoid:
Lack of budget
Improper budget creation and adherence can result in excessive expenditure and unstable finances. Organise your finances by keeping a regular tab on your earnings and outlays.
Living beyond your means
Refrain from the need to spend more money than you make. Financial stress and debt can result from relying too much on credit cards or loans to support an unaffordable lifestyle. Focus on saving and living within your means.
Ignoring an emergency fund
Unexpected costs, like hospital bills or auto repairs, can be incurred anytime. Not having an emergency fund can make you more susceptible to debt when these things happen. Accumulate three to six months’ living costs in a readily accessible savings account.
Debt accumulation
It’s important to comprehend the terms and repayment choices if you have outstanding obligations. Refrain from skipping instalments or defaulting on your debts since this might lower your credit score and have adverse financial effects. Create a plan to pay off your debt and determine possible repayment choices.
Not saving for retirement early
Retirement may seem far away, but starting to save early can make a significant difference in the long run.
Neglecting insurance
To safeguard oneself against unforeseen circumstances, obtaining the right kind of insurance is critical. This covers life insurance, health insurance and possibly, auto insurance. Research and compare several policies to get the best coverage for your needs.
Here are some key decisions to consider:
- Create a budget: Develop a comprehensive budget outlining your income, expenses and savings goals.
- Build an emergency fund: Set aside funds in an easily accessible account to cover unexpected expenses, such as medical bills or job loss.
- Save for retirement: Do not rely on your contributions with SSNIT alone.
- Invest wisely: Consult with a financial advisor to determine the best investment strategy based on your goals, risk tolerance, and time horizon.
- Live within your means: Differentiate between essential and voluntary expenses, and practise mindful spending.
- Avoid impulse buying: Evaluate whether they align with your long-term financial goals before making significant purchases.
- Continuously educate yourself: Stay informed about personal finance, investment strategies, and money management to improve your financial literacy.
Everyone’s financial situation is different, so adapting these decisions to your specific needs and circumstances is essential. Regularly reassess and adjust your financial plan to ensure you’re on track to meet your goals.
The writer is an Investment Manager, Stanbic Investment Management Services (SIMS)
