Most young people have unique advantage when it comes to money. They have more time on their side compared to the adult generation. Young people have number of years to work and save for their future financial goals including owning a house, good retirement etc. However, that doesn’t mean that these youths are not making some money mistakes.
If you observed the situation in the Gambia or read the headlines around the world, many young people are overwhelmed with financial pitfalls such as loans, low paying jobs or even career advancement issues. However, they could avoid some of these common money issues if they learned and apply key financial management principles. In this article, I have summarized some common financial mistakes young people are making in the Gambia and most African countries.
1. Fail to apply Compound Interest and Time Value of Money concept.
The biggest and wonderful driver of any wealth growth is the ability to cumulatively save and invest over time. With a monthly savings of few dalasis, the power of compound interest can be enjoyed by anyone. It really works like magic in the later years. Most young people have learned about compound interest in high school but consistently fail to apply this magic equation.
Young people should focus on saving every dalasi possible during their early years. A D5,000 saved at age 25 could be worth as much as D20,000 in 20 years’ time. That is a serious money which many youths are potentially passing up by not saving early on. Imagine saving D500 on monthly basis for 10 years.
For the older generations, they simply don’t have 40 years to let their money grow. And with each passing decade, it becomes more difficult for wealth to grow at that rate.
2. Ignoring the Basic Money Equation
The next major money mistake that young people are committing is ignoring the basic personal finance equation. When it comes to money, this simple equation is fundamental to wealth creation:
Income – Expenses = Savings, and then savings to investment
This is not only to focus on the “minimize expenses” part of the equation, but also consider the income aspect of the equation.
As a young, healthier and tech savvy youth, you have unique advantage when it comes to potentially earning more money. You should be doing every good job possible to maximize your income e.g. taking on side jobs to earn extra cash or even start a small side business. If you are not sure where to start, then look at our business ideas list.
3. Keeping Up with the Friends and Family
Your best friend graduated from college or started his/her first job and immediately bought the latest iPhone or a second-hand C-class Benz. You start to say oh yes!, I must also get a new iPhone. There, you are creating more financial stress in your life.
To compete with peers or family members; always remember that some of these people have signed up for another debt. It means that those who buy more new things are not necessarily financially better off.
It’s better to avoid buying latest gadgets and take pride in your savings account balance instead.
4. Most Young People have no long-term financial goals
Most young people between the age of twenties and thirties usually have short-term financial goals, like paying their rent, new gadgets or holiday bills. However, if you can afford to set short-term financial goals, setting long-term goals should be easier. Think about long-term goals like owning a house, retirement planning, higher education, business startup etc and start working towards them.
5. Not having Any Emergency Savings
Most young people tend to believe that having some money to buy food to eat and paying the usual bills should be enough for their bank accounts. However, creating an emergency fund account could really help you in case of unexpected bills. Car breakdown, medical bills etc. You can read more about how to build emergency funds in this article.
6. No Budget for Expenses
A budget is simply a financial plan to help you understand where your money is spending. Without proper budget and savings plan, you will most likely be looking up to pay days or bank overdraft.
Creating a personal budget does not have to be a daunting process that people make it to be. In fact, managing your money can be quite simple with the proper resources and the right attitude.
Do you need some ideas? Then, take a look at our article on how to prepare a personal budget.
Remember that something which is measured can easily improve.
Creating and sticking to a budget may seem difficult, however, by making this change now, you will save more as you spend less. People without personal budget are more likely to make impulsive buying of items.
7. Fails to learn about Personal Finance
Many young people are never taught about money management by their parents or school. Yah, that is disappointing, but it should not be an excuse. You should endeavor to learn more about savings, budgeting, retirement and wealth building to enable you make the right financial decisions in your life. It does not matter if you are a lawyer or medical doctor, all your rewards are in a form of money.
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The Bottom Line
We all have limited supply of resources, so we must intentionally decide how we will optimally use these resources. That means balancing our needs and wants today with needs and wants tomorrow. Failure to manage our wants can result into having little to show for years of hard-earned money.
Young people should keep life simple. Focus on earning more money, save the excess and never pass up free money. Cutting costs are great, focusing on personal development is key and possibly side business to supplement salaries never hurts. They have a lot of time and potential, so they should take advantage of it.
What are your thoughts on young people and money ?
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