3 Financial Mistakes You Must Avoid-Once You Start Earning

And how to escape these financial traps.

“It’s not how much money you make, but how much money you keep. You could make a million dollars today, but if you squander it tomorrow, it doesn’t matter a whole lot that you made the million.” — Robert Kiyosaki

Earning money is one side of the coin; protecting and multiplying is another side which we all need to learn at the earliest. It’s one of the biggest lessons I learned from Robert, author of the best-selling personal finance book: “Rich Dad Poor Dad”.

Did you ever lose your accumulated savings and investments? Did you miss to invest just after you started earning?

I missed it, at least.

I started earning part-time when I was 17 and got a permanent job at 25, but I missed the train to invest during this liability-free period of eight years.

And there are many such opportunities we lose, mistakes we make due to un-awareness.

“An investment in knowledge pays the best interest.”

— Benjamin Franklin

I understand that Gen Ys and Zs are better educated on personal finance today. But still, I thought to educate you on — three basic but unforgettable mistakes I made.

1. Save the Leftovers

Most youngsters start spending heavily in their first year of the job, and I did the same when I got my first job. That’s what I learned throughout my early education — whatever left, save it.

The problem with this is, nothing will be leftover.

Because the first month we need iPhone, second we need a motorbike, third, we need a vacation and so forth. It never stops until a year, and by the time it becomes our ingrained habit, then we take credit cards, personal loans… Boom! We are gone.

I’m not saying everyone does this, but I found many people fallen into this trap, including myself.

I carried seven credit cards within six months of my first job. And you may have heard of the credit card balance transfer service. By using it, your credit card debt gets transferred to another card with a small fee, and you continue to rotate your debt; it keeps piling up.

I was lucky to get out of this trap with the help of my friend.

So how can you avoid these mistakes?

Remember, the mantra “Spending = Income — Savings”. It means you need to prioritize savings over spending. First, save and then spend.

“Do not save what is left after spending; instead spend what is left after saving.”

— Warren Buffet

The reverse is also true, but that’s for the people who are having fair control over their spending.

To implement this, you need to have a mindset and a target to achieve a financial goal. Begin with the end state in mind. Once you have that, start with only — one biggest financial goal you ever wish to achieve.

And then, based on your financial situation, look forward to accumulating — emergency fund and short-term needs. Don’t squeeze too much for the savings else you won’t be sustaining.

The early you start, the better the chance of being financially solid in your 20s.

2. Pause and Resume

I started investing in mutual funds in 2005. Those days my portfolio was growing at a good speed. But after continuous three years of investment, I paused it due to a sudden spike in my regular expenses. It was for my marriage followed by a vacation. I thought I’ll resume after six months of marriage. Trust, I couldn’t reinvest until 2016.

I’m still guilty of losing nine years of investment tenure. Why? Because I lost the opportunity to multiply my wealth using the miracle of compounding.

I’m very well consistent now, but I don’t have sufficient time to wait until the real power of exponential growth kicks in.

How can you avoid this trap?

Start with the smallest monthly amount that you can ever continue for years and years. Be consistent, never ever stop it. For emergencies and other needs, plan separately.

With every salary hike or additional income you get, increase your monthly investments by a fixed percentage.

If you don’t have enough long years to invest, you’ll need to increase the investment amount based on your financial goals.

And yes, don’t miss to consider the cost of inflation while planning your targets. For example, the cost of higher education for your child will be much higher in the future than today.

3. Ad-hoc Withdrawals

I wiped off my accumulated wealth twice to fulfill my desire and managing a financial crisis.

And this is what I’ve seen most people fall into. Their short-term needs or desires will disrupt the long-term wealth generation goals. And they end up with on-demand withdrawals from their funds. One way you can control is never to mix up your goals.

How can you do it?

Think of all the possible unknowns, which can interrupt your monthly investment plan against your wealth goals.

Identify patterns of monthly and annual expenditures. I found the ‘Walnut-App’ helps generate insights on it.

In an emergency, you can always stop your annual spending like a big vacation, but it’s difficult to control the recurring expenses. So, try to create a one-year contingency fund for it.

Consider all the financial goals you can think of, right from ultra-short to very long term.

And, you must take term and health insurances, which will protect your investments from interruptions.

No matter how good is your financial planning, but the key is sticking and continue with your financial goals. And it requires a massive mindset to save yourself from untimely financial jolts.

Avoid these three basic mistakes and make yourself financially solid in your 20s.

This article is for informational purposes only. It should not be considered financial or legal advice. Consult a financial professional before making any major financial decisions.