Young professionals in their twenties and thirties can often make missteps when trying to save for the future. To help navigate some of these tricky situations, the RaeLipskie Partnership has rounded up the top five most common missteps when it comes to investments and planning.
Spending more than you make and living off credit cards
The grass may seem greener on the other side but not if you can’t afford it! A common misstep made is spending more than you earn. Month after month, pay cheque after pay cheque, live within your means. So often we feel deprived if we have to do without (especially if we think everyone else is living the good life). However, spending beyond your means isn’t sustainable, which you will discover as the bills and balances start to pile up. Entrepreneur says “Spend less, and you’ll find financial freedom is much more empowering and gratifying than constantly trying to keep up with others.”
Do not credit and forget it! This bad habit is guaranteed to rack up debt that could take years to pay off. Using credit cards as a crutch to get by will only hurt you in the long run.
Careless spending
Are you living pay cheque to pay cheque and can’t figure out where you’re going wrong? Chances are, you’re doing some careless spending. An easy way to correct this is to track your spending so you know where your money is going. You may think you’re spending wisely, but when you track your spending — even for a week — you will be surprised at just how quickly the little purchases can add up. Yahoo Finance compiled a list of the top budgeting apps to help you get your finances in check. You can also try paying with cash and limit those random shopping sprees, making a grocery list, pack your lunch and try eating most of your meals in.
Not building good credit
Building good credit helps you rent an apartment, apply for a credit card or get a loan. It takes time to build a good credit score, and involves practicing good habits such as making all your payments on time.
Avoid opening too many accounts at once, and keep your credit utilization (the amount of credit you use as compared to your limit) as low as possible. Pay off your credit cards monthly, or carry a balance of no more than 30 percent of your credit limit.
Starting a family without a financial plan.
It will cost a middle-income family approximately $245,300 to raise one child from birth to 18 years. This estimation does not include pregnancy, loss of income during maternity leave or college for your future Doctor, according to Entrepreneur. If baby is already on the way, it’s time to start working on a plan for maternity/paternity leave and a post-delivery budget, including diapers and childcare.
Putting off saving for retirement
The truth about saving for retirement is this: the sooner the better! The sooner you start putting away money (even small amounts) into a savings account, the longer that money has to accumulate interest and build into a healthy fund that will see you through into old age. Your goal should be to eventually save between 10 to 15 percent of your income for retirement; however just starting, no matter how much, is a great way to get in the habit of saving. Then, when you get a raise, allocate some portion of the incremental income towards additional savings. You’ll thank yourself in 30 years!
If you’re a client, contact your advisor and let them know about your goals. If you want to learn more about working with us for financial planning to avoid these missteps or creating an investment portfolio, contact us.
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