How to Avoid Common Money Mistakes as a Beginner

Coming of age, you understand the role and importance of money as one of the most important aspects of life. Alongside health, family, and work, that motivates you to get up and going. And, like all of them, you'll make some mistakes before you get it right. That's normal. Still, some financial missteps can have long-term consequences if not addressed early.

This guide will help you identify common money mistakes that beginners make and provide tips on how to avoid them, setting you on a path toward financial well-being.

1. Not having a savings plan

One of the biggest financial mistakes that beginners make is not having a savings plan. Without a plan, it's easy to spend impulsively on things you want rather than need, leaving little or nothing saved for the future.

How to avoid this mistake:

Start by opening a savings account. A zero-balance savings account is perfect for beginners because it doesn't require a minimum balance and allows you to save at your own pace. Set a goal to save a percentage of any money you receive, whether it's an allowance, gift money, or income from a part-time job.

2. Overspending on wants, not needs

Young people often overspend on wants like clothes, gadgets, and entertainment, without budgeting for essential needs or saving for future expenses. This habit can lead to a cycle of living paycheck to paycheck, even as you grow older.

How to avoid this mistake:

Create a budget that distinguishes between needs and wants. Prioritize spending on essentials like school or office supplies, transportation, and savings first. Once your needs are covered, you can allocate some money for discretionary spending.

3. Falling into the credit card trap

You may be tempted to overspend on credit cards, thinking you can pay it back later, only to find yourself overwhelmed by interest and fees.

How to avoid this mistake:

If you have a credit card or are thinking of getting one, use it wisely. Set a low credit limit, pay off the full balance each month, and avoid using credit for unnecessary purchases. It's crucial to build credit responsibly, as it will play a significant role in future financial opportunities like loans and rentals.

4. Ignoring the importance of financial education

Many people neglect to educate themselves about personal finance, thinking it's something they can deal with later in life.

How to avoid this mistake:

Take advantage of resources available to you, such as financial literacy courses at school, online articles/videos, or even advice from parents or mentors. Understand the basics of budgeting, saving, investing, and using credit wisely.

5. Not having an emergency fund

Many new consumers overlook the importance of having an emergency fund. Unexpected expenses, like phone repair or a sudden trip, can derail your budget if you're not prepared.

How to avoid this mistake:

Aim to set aside a small emergency fund. Even saving a little each month can help build a cushion that you can fall back on in case of unexpected expenses. This fund should be separate from your regular savings and should only be used for true emergencies.

This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.