Starting a new job or getting a promotion can be an exciting time!
Whether you’ve been out of work for a while and are just now getting back on your feet, or you’re climbing the career ladder and are moving into a better-paying job, you’ll need a financial plan to keep your budget on track.
So before you rush off to lunch or happy hour with your new co-workers, you should first work to avoid these common financial mistakes made by new employees.
Mistake #1: Splurging or spending based on your new income.
You received a big pay raise with your new position. Congratulations! You should be proud of your accomplishment and you may feel it’s a good time to celebrate. But be careful because it’s all too easy to go overboard when you know that “extra” money is on its way.
Unfortunately, a lot of people earning bigger salaries immediately start spending a lot more money. They “upgrade” their wardrobes, start renovating their homes, or simply start paying for additional products and services because they believe they can now “afford” it with their bigger salaries.
Try to avoid big shopping sprees or impulse purchases. Remember a 10% pay hike or even a 20% raise may seem like a lot, but you also have to factor more taxes into the equation as well. Rather focus on your net earnings and not your gross income to avoid falling into debt.
Mistake #2: Applying for credit.
If you’re enjoying a pay increase with the new job, you might be tempted to sign up for that credit card you’ve been thinking about for a while.
Even though you might increase your eligibility for certain types of credit cards, try to avoid falling into the credit card and debt trap. Be smart about spending only the cash you have and enjoy the extra money you’re now earning with a realistic budget and spending plan.
Mistake #3: Ignoring your budget.
Whether you’re earning more money or getting a pay cut as you start the new position, make sure you’re adjusting your budget to account for the change in your financial status.
Take the time to rework your budget if necessary and factor in additional commuting costs, work-related food expenses, and the cost of a new wardrobe.
For those who’ve relocated for a new job, it can be costly to move from one city to another, so take these expenses into account as well.
Remember all of these expenses will be part of the “cost” of having your new position.
Mistake #4: Not saving for retirement and emergencies.
Most people think that when they get a new job, or get promoted, they will have more money and will be fine if an emergency occurs, or that they can simply make up the difference later if they don’t put money aside for retirement now. What tends to happen is that no additional money is saved despite having more of it. This is a false sense of security that can really hurt in the long run.
Try to see a new job as an opportunity to put more money aside each month into various savings and retirement accounts. It’s important to have the money there for (what is always going to be) an uncertain future, including the potential retrenchment or urge to create your own business.
Mistake #5: Buying a new car.
Buying a new car is often at the top of a priority list when someone gets a raise or starts earning more money. A nice luxury car makes many people feel that they’ve arrived – and done so in style!
But always consider the pros and cons.
Don’t make the impulsive choice to get a new car because of a pay increase. There’s no guarantee that you will still have that job a year or two from now. And you will likely still be responsible for paying off that car loan, regardless of your employment status.
Are you sick and tired of being in debt?
Contact Meerkat today and let our team help you reduce your monthly debt repayments through our debt counselling services!