5 Financial Mistakes To Avoid When You Receive Your First Paycheck

Your ultimate financial freedom officially begins when you receive your first paycheck. The thrill of finally having your own hard-earned money to spend on anything you've ever desired after years of being a penniless student is priceless. Your 20s, though, will either make or break you. Spending all of your money on unnecessary indulgences, taking excessive risks, and failing to plan for the future will ultimately prove to be a major financial blunder.

Here are 5 common mistakes that young people make with their first salary that you can now avoid:

• Not Planning for The Long-Term

  Even though you may have just started working, you would be surprised how the years will pass - almost within the blink of an eye. You may also want to contemplate on achieving financial freedom early so that you can invest your time in doing what you love - travel or starting a venture of your own or just soak in life’s experiences.

  So, you should also begin to consider your long-term investments, with a pension ranking as the most significant of these. HDFC Life Sanchay Plus is a savings plan that offer guaranteed income in the future. Even though retirement may seem far away right now, if you start saving money right away, even a tiny amount, you'll benefit from the miraculous power of compounding.

• Senseless Spending

  While the joy of receiving your first paycheck and wanting to spend it all on your favourite products is hard to resist, you've got to. One of the biggest mistakes you may make, not just as a fresher but throughout your financial career, is spending on luxury only to purchase them on a monthly EMI and hoping to pay it off within a year. Spending too much on luxuries you might not even use in the future is a bad idea. Keep in mind this rule: Don't buy anything unless you can pay for it twice in cash.

• Taking Too Much Risk

  It's never a good idea to put all of your money into high-risk investments. No, we're not suggesting it's a poor idea to invest in high risk instruments like crypto assets; rather, we're saying it's a bad idea to put all of your money into one financial asset. Thus, never put all your eggs in one basket. If you're passionate about investing, then learn how to build a comprehensive portfolio and hedge your funds. You must learn how to survive in every market, not just when it's at its peak and giving you hefty returns.

• Not Following A Budget

  Long-term financial imbalances are the only outcome of failing to keep track of your money's inflow and outflow. Being in your 20s, you might not be aware of the amount of money you spend on social gatherings or happy hour sessions. Develop the practice of tracking your fixed expenses, setting a budget, and sticking to it. If you've never maintained one, start with any budgeting app or anything as basic as a Google Sheets budget template.

• Not Creating an Emergency Fund

  An emergency fund is a safety net that will enable you to maintain your standard of living, make on-time payments on your debts, and cover essential needs even in unexpected circumstances. Relying on your credit card in these situations might not be the best move because it will burn a big hole in your pocket and damage your credit. As a result, you should always set aside at least 10% to 15% of your income as an emergency fund to give you the security you need when things are uncertain.

Small consistent money habits will eventually help you build wealth in the long term.

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ARN: ED/12/22/31003