If only there was a manual that came with life; wouldn’t everything be so much easier? What if, after graduating college, students were given a guide on financial management? What a different world we would live in. Alas, there’s not, and, as such, we all must slowly figure out how to navigate all the aspects of life that we face, be it relationships, careers, or finances. This last one is particularly not often talked about. In fact, rarely would you find friends discussing their finances as they do relationships, work, sports, etc.
But we can’t live without money. So, we figure it out. Unfortunately, a lot of mistakes occur, some small and some devastating. Here at Money-Smart Millennials, we want to equip you with the knowledge to avoid making those financial blunders. There is no financial stability when we keep falling, is there? So, below we look at a few financial rules that are worth following.
Beware of Lifestyle Inflation
Of all the financial traps to be wary of, lifestyle inflation is the one that’s the easiest to fall in to. It’s especially important after you’ve finished college; you’ve been scrimping and saving pennies for years, and now you’ve got a sweet $45,000 a year job which could represent a 15, 20 or even $25,000 increase in income – of course, there will be temptations to spend the cash! But to have long-term financial health, you can’t spend all the money you earn. By the way, taxes and other deductions will diminish your yearly income to approximately 70% of your gross salary. Keep that mind.
When you get a $5,000 raise, do not increase your lifestyle by $5,000. Do increase your savings as much as you can, budget and be disciplined. Your lifestyle may improve but use that extra money wisely..
Don’t Fall in The Debt Trap
Countless times, I’ve seen college graduates get their new corporate job and instantly buy a new car. Though the one they’re driving runs perfectly fine, their reasoning is that the occasion requires a new one. Spending $4000 (that you don’t have) on a credit card so you can travel around the world is not wise. These are just a couple examples of debt traps that I see millennials fall for. Instead, the transition from college to the corporate world should be a time of increase in your life. Be careful with your spending and learn to delay gratification.
This doesn’t only apply to new graduates. It is relevant to anyone. Unfortunately, too many people rack up so much debt that they end up filing for bankruptcy. Yes, there are solutions to bankruptcy such as using a service like http://dovebankruptcylaw.com/chapter-7-bankruptcy-personal, but prevent the headache by being diligent today.
Don’t wait too long to invest
Yes, you’re young, and investing seems like something that older people do; but it’s worthwhile learning how investments work when you’re young. The earlier you start, the more time you’ll have to make your finances grow! As a graduation gift, you may have received some cash. Why not start there? Generally, it is recommended to be aggressive while you’re young but it’s up to you. You don’t have to use the services of a professional yet, you can learn how to do it on your own.
You Can’t Always Keep up with Friends
You love your friends, but as you get older and move up in your careers, the differences between your incomes may become more pronounced. If your friend earns, say, twice as much as you do, you can’t be expected to keep up with their lifestyle. And if you’re the one bringing in all the money, try not to put pressure on your circle of friends.
Keeping up with the Joneses is a serious financial trap that can affect you for years. Avoid it.