In many countries the job market is currently booming, which means that for many people now is a great time to look for a new job. Those just entering the job market, however, may find that adapting to working life presents a set of challenges when it comes to their personal financial goals. In this article, we look at some common mistakes that people make early in their career.
Staying in a job where you are underpaid or overqualified
Research shows that the job that you do in your early- to mid-twenties can play a large role in determining your longer-term career outcomes. If you find yourself in a role that you do not feel fully utilises your skills, then it might be a good idea to look for roles elsewhere.
Aside from the fact that you might be underpaid relative to your skills and experience, a role that you do not find demanding can be a real drag on your professional development. This is especially true in the early stages of one’s career, where performing challenging work and gaining invaluable experience can really build a platform from which you can launch your future success.
More generally, if you feel that you are underpaid relative to other people in your industry, this might also be a sign that you should look for jobs elsewhere. On the other hand, even if you do feel you are somewhat underpaid, it might be worth staying in your current role if you feel that the experience you are gaining will help you to progress your career.
Getting into debt
As we explained in this article, using a credit card is not always a bad idea. However, one common mistake that people make early on in their career is losing track of how much money they have spent on a credit card and then not being able to repay amounts borrowed with next month’s salary.
This might at first sound like an avoidable problem but it is actually much easier to get into credit card debt than one might think: if you take out an amount of credit card debt that is rather close to your monthly disposable income, then any unexpected cost the following month might mean that you are unable to make your monthly credit card repayment.
Additionally, the rise of “buy now, pay later” (BNPL), which we looked at in this article, poses further risks. In summary, BNPL allows us to spread payments for online purchases over several months. Naturally, if you make several BNPL purchases over consecutive months, it can be tricky to work out quite what your outgoings will be on a monthly basis. Although BNPL typically do not market themselves as such, they are effectively debt and should be viewed as such by consumers (even if they do not charge interest).
Not saving into a pension
Early in your career, it might be tempting to overlook saving into a pension and instead focus on other financial goals, such as saving for a home deposit. However, this can be a risky move when you consider the tax advantages of paying into an occupational pension (i.e. your pension contributions are deducted from your pre-tax salary) as well as the fact that your employer is obliged by law to make a contribution towards your pension. On top of this, by starting to save into a pension early on in your career, you will give yourself a longer time over which to enjoy the effect of compound returns.
Having said that, everyone’s personal situation is different and it is ultimately up to you to balance your various financial goals. One way to do this is by viewing your goals in terms of when you want to achieve them. For example, a short-term goal might be saving for a holiday, a medium-term goal might be saving for a home deposit, while a long-term goal for most people will be ensuring that you have enough saved for retirement (whether in a pension or otherwise).
By keeping an eye on the common mistakes described above, you will hopefully be able to make the most out of your early career, both professionally and financially. Ultimately, life is not all about work and work is certainly not all about money—but both work and money nevertheless play a large role in our overall wellbeing. Building good habits around both early on in your career will undoubtedly pay off in the long run.