7 personal finance mistakes young professionals make and how to avoid them 26.10.2020
The world would be a perfect place if we all graduated with a personal finance degree the minute we reached adulthood. Instead, when it comes to money, we sometimes have to learn from experience, even though these life lessons can literally cost us thousands of rands.
Luckily, this is not always the case. Here are 7 expensive and all-too-common mistakes you can avoid if you’re a young professional in South Africa.
Spending without a budget
The financial freedom that comes once you become a professional might not be a lot, but without a budget, it’s easy to spend more than you can afford. You’re likely to end up with a brand-new iPhone but no transport money to get to work.
The solution: Write down how much you earn and then calculate your current monthly expenses. Next, decide how much you want to spend every month and try to use minimalist and frugalist tactics that help you save money. Last but not least, check out these cognitive biases that can easily trick you into overspending.
Not having an emergency fund
Some South African youths live paycheck to paycheck, and the only emergency fund they know are their parents or friends. Yes, you only live once, but without an emergency fund, you’re basically failing to plan for unforeseen circumstances like hospital trips and other disasters.
The solution: Having an emergency fund helps you to avoid those panicked moments where you have to rush and beg your family and friends for money. Learn more about what constitutes an emergency fund and how you can set one up.
Staying away from investments
As a young professional, your focus might be on working as much as possible, but you can also make your money work for you. After all, savings can only take you so far. One of the quickest ways to financial independence is to turn into an investor.
The solution. Take the time to understand how investments work in general and the risks involved. Consider investment opportunities like stocks, bonds, and peer to peer lending. Seek professional advice wherever possible to avoid falling for scams.
Thinking you don’t need medical cover
Youth and vitality usually go hand in hand but never think that hospital bills don’t apply to you. Accidents happen, and unexpected pandemics like the coronavirus also happen. If you don’t have health insurance, an emergency trip to the hospital can wipe out all your savings and get you further into debt.
The solution. Find the most affordable health insurance provider. You might not be able to get full coverage at first but always work towards getting a better plan. Also, find out if your employer or company has a program that can contribute to your health insurance payments.
Taking out a loan you can’t afford
As a young professional, borrowing can help you in a tight spot, but it’s easy to end up in the proverbial vicious debt cycle. Societal and social media expectations can push you to take out a loan to pay for a big wedding, a luxurious apartment, or the latest iPhone. Still, if you can’t afford them, they might be completely unnecessary.
The solution. Understand the cost of borrowing before you apply for any personal loans. If you’re already in debt, there are steps you can take to recover from debt.
Failing to build your credit
Avoiding loans or debt altogether is also bad for you. Not having a credit history can prevent you from doing things like:
- Applying for a home loan
- Negotiating a low interest rate on loans
- Getting approved for a rental apartment
- Finding car insurance with better rates
The solution. Get started by not only paying all your bills on time but by also opening affordable credit accounts. Here are a few more tips to help you improve your credit score in South Africa.
Spending a student loan unnecessarily
You might have heard that education is your ticket out of poverty, but this is not always the case. The unemployment rate in South Africa is not very encouraging for graduates at the moment, so it might not be wise to apply for a R200 000 student loan.
The solution. It might be necessary to look for side hustles or gigs that bring extra income while only partly financing your education. Hopefully, you won’t end up with a low-paying job and a huge student loan you have to pay off for several years to come.
Photo by Ketut Subiyanto from Pexels
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