Congratulations! You've graduated and are now ready to start your career, or you have landed your first job and are ready to take on the world.
This is an exciting time, but it's also when you must be mindful of your finances. As a fresh grad, you should avoid several financial mistakes to ensure a stable financial future. In this article, we'll explore some of the most common financial mistakes fresh graduates make and how to avoid them.
Credit Card Debt
Credit is a valuable financial tool but can also be dangerous if not used correctly. Many fresh grads make the mistake of using credit cards to finance a lifestyle they can't afford, leading to a lifetime of debt. It's important to understand how credit works and to use it responsibly.
Only spend what you can afford to pay off each month, and always make your payments on time to avoid late fees and damage to your credit score.
Signing up for credit cards as soon as you graduate can be tempting. After all, they come with great rewards like cash back and travel points. But if you didn’t keep track of your spending and miss making timely payments, those rewards will be of no benefit when facing a hefty credit card bill.
If you decide to get a credit card, ensure it has a low-interest rate and use it responsibly.
Student Loan Debt
Student loan debt is one of the most common types of debt among recent graduates. It's important to remember that these loans need to be paid back eventually; they usually require repayment within 15 years after graduation.
In Malaysia, to qualify for a student loan also known as PTPTN, (Perbadanan Tabung Pendidikan Tinggi Nasional (or National Higher Education Fund Corporation), you must be a citizen, be up to 45 years and below, be ready to have an offer to study at an institution of higher learning, study an accredited and approved couse by MQA, have no other sponsors, and must have an SSPN-i-savings account with 15 digits before sending in your application. You need to start paying back within 12 months of graduation.
In recent years, there has been a concerning increase in the number of individuals who fail to repay their PTPTN loans, leading the government to take decisive action in deterring borrowers from defaulting. Despite the lifting of certain measures, such as travel bans, the blacklisting of PTPTN defaulters on the Central Credit Reference Information System (CCRIS) remains in effect. CCRIS, a repository of financial information on Malaysian borrowers, is utilized by banks to assess a borrower's creditworthiness.
Being blacklisted on CCRIS is a weighty matter as it could result in immediate rejection of credit card, home loan, or personal loan applications. It is imperative that borrowers avoid defaulting on their PTPTN loans to avoid negative consequences on their credit profile.
Not Having A Budget
Managing your finances can be overwhelming and daunting, especially if you need help figuring out where to start. But worry not; budgeting is an effective way to take control of your finances and achieve your financial goals.
With budgeting, you can map out your finances and create a plan to ensure you spend your money wisely.
One of the most important things to remember when budgeting is to spend only what you make. It's a basic rule of thumb, but it is crucial to avoid overspending and accumulating debt. Various budgeting strategies are available, such as the zero-based budget, 50/20/30 plan, three-category budget, and many more. The key is to find the strategy that works best for you.
The first step in budgeting is to calculate your after-tax income. Once you have a clear idea of how much money you have coming in, you can factor in your necessary expenses, such as rent, utilities, cell phone bills, student loans, and car loans.
From there, you can determine how much money you can spend each month without compromising your savings goals.
Not Saving For Retirement
One of the most common financial mistakes that fresh graduates in Malaysia often make is not saving for retirement. It is easy to get caught up in the excitement of landing a new job and receiving a steady income, but it is essential to think long-term and plan for the future. Many young people believe that they have plenty of time to save for retirement, but the earlier you start, the more time your money has to grow and compound interest over time. It is crucial to set aside a portion of your income for retirement, even if it is a small amount.
Retirement planning is an important part of life, especially in Malaysia. Everyone wants to be sure they have enough money set aside when the time comes to hang up their working boots and call it a day. But with so many options out there, how do you know what’s right for you?
In Malaysia, there are two main types of retirement plans that can help you save for the future. The first is called the Employees Provident Fund (EPF). This is managed by the government and gives employees and employers a contribution rate based on monthly wages. With EPF, you can withdraw from your account after age 55 or use it as collateral for loan applications.
The second type of retirement plan is known as a Private Retirement Scheme (PRS). It offers flexible investment opportunities such as stocks and bonds, which can provide higher returns than other forms of savings but also carries more risk. You can choose between different funds and make contributions depending on your preferences and financial situation. PRS does not allow early withdrawals unless under certain circumstances.
A Lack Of Savings
You may feel like you need more money left after paying off rent and bills each month to put into savings, but setting aside even small amounts can help build an emergency fund in case of unexpected expenses or job loss down the line.
Start by setting aside just 5-10% from each paycheck until you reach your goal amount; then try increasing it incrementally each month to become second nature eventually.
Living Beyond Your Means
One of the fresh grads' most common mistakes is living beyond their means. Many new graduates are excited to start earning money and enjoy the freedom of being financially independent.
However, it's essential to remember that your income is limited, and overspending can lead to a lifetime of debt. Creating a budget and living within your means is important to avoid financial stress.
Not Saving for Emergencies
Emergencies happen, and when they do, they can be costly. Whether it's a car repair or a medical bill, unexpected expenses can quickly derail your financial plans.
As a fresh grad, having an emergency fund in place is essential to help you weather unexpected expenses. A good rule of thumb is to have three to six months' worth of expenses saved in an emergency fund.
Not Investing in Yourself
Investing in yourself is one of the best financial decisions you can make as a fresh grad. Whether continuing education, professional development, or learning new skills, investing in yourself can lead to higher earning potential and a more fulfilling career.
Consider allocating some of your income to invest in your personal and professional growth.
Not Seeking Professional Financial Advice
Many fresh graduates hesitate to seek professional financial advice, thinking they can handle their finances independently. However, a financial advisor can provide valuable budgeting, saving, investing, and retirement planning guidance.
Consider working with a financial advisor to help you navigate the complex world of personal finance.
Conclusion
It's important to avoid getting caught up in short-term gains at the expense of long-term security.
Credit cards can offer great rewards but must be used responsibly; student loan debt should always be taken seriously, and saving money is essential for any young person who wants to stay ahead financially in their future career path.
With these tips in mind, fresh grads will have a better foundation for taking financial risks—the right kind!—as they embark on their journey toward success after graduation.
You can build a solid foundation for your financial future by avoiding these mistakes and making smart financial decisions.
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