Young earners often start their careers with significant dreams and hopes that often require money to achieve. Many are enticed by “get rich quick schemes” not realising that making a lot of money today and building wealth for the future are not one and the same.
Though some young earners have realised the value of saving, many are yet to understand how to gain the most returns out of that money, often causing them to give up quickly. One thing I’ve learnt during my interactions with young earners is that there are certain common mistakes that run through all their stories.
‘I bought a life insurance policy to save tax’
Many young earners blindly invest in life insurance usually at the end of the year when they need to submit tax saving proof to their HR. This sort of impulsive investment usually leads to disappointing returns as most have failed to consider all factors before making a hasty decision. The truth is that almost every other tax saving option is better than buying life insurance. The best option for young earners is essentially Tax-saving (ELSS) funds as they provide tax-free returns with the shortest lock-in period.
‘I wasn’t sure whereto invest, so I didn’t’
Investing early can help grow wealth, sustainably, for the future. Most young earners don’t know where to invest their money, and most importantly they don’t know that starting small yet, starting early is better than waiting for a large sum of money to accumulate.
As a result, they often let their earnings sit idle in their bank accounts for extended amounts of time. This forms unsustainable spending habits and fails to create long-term wealth. If you don’t know enough about mutual fund investments, start by setting aside 5-10% of your salary every month in a debt fund or recurring deposit.
‘I don’t invest in self-improvement’
Many young earners believe it’s a waste to invest in opportunities that could add to their skills and expertise once they have a job. However, to keep the process of learning continuous, develop new skills and improve the quality of life, self-improvement is a must.
Personal development is a life long investment process that enables you to maximise your potential to not only grow your skill set but also grow your avenues for wealth creation. Improving and expanding your skill set can boost your career prospects and ensure job security.
‘I change jobs every year to increase my salary’
This mistake is often made as young earners quickly become bored with their jobs and believe they are being more ambitious if they pursue new opportunities on a regular basis. This ‘getting ahead’ trend can be harmful to your career as it can prevent you from reaching a level of higher experience and seniority within your company.
Jumping jobs purely for monetary gain can cause you to be unsatisfied in the long-term and often curbs opportunities for better career prospects. On the other hand, staying with one company for a long period of time can not only allow you to develop skills in a specific field, but can guarantee stable financial progress.
‘I forgot about my education loan’
A large number of young people today start off their careers with education loans. With the pressures of work and the start of a new life, repaying the education loan takes a backseat. However, ignoring education loans can cause interest to mount up leaving you with a bigger repayment amount.
Being systematic in your early life about paying loans is the corner stone of financial disciple and success. Fulfillment of this obligation can only serve to improve credit scores and even allow you to avail of other loans in the future at competitive rates. Once you have completed paying your education loans it is advisable to redirect this amount towards long-term investments.
As a young earner it is important to invest time in understanding the principles of money and investments so you can avoid these common mistakes. The mistakes you make today may seem to have little financial impact but are liable to come back and prove costly in the future.
Making a lot of money is a good ambition to have, but building your long-term wealth takes long-term effort. With a little big of planning and foresight you can make sure your money goes where you need it the most instead of trickling out of your grasp when you weren’t paying attention.
(The writer is CEO of Scripbox)