Young people find it very hard to manage their finances. This problem is even worse for those who have just graduated and found their first job. They end making a lot of mistakes, some of which come to haunt them later on in life. This is why we will highlight the ten common financial mistakes that you are likely to make as a young adult so that you can avoid them.
1. Failing to Save for Retirement Early
When you are young, retirement appears to be miles away. Unfortunately, this is far from the truth. It is advisable that you start thinking about retirement as soon as you land your first job. Furthermore, starting early means that you will have a lot when you retire. Therefore, take advantage of the numerous saving schemes around.
2. Spending Too Much on a House
There will forever be the temptation to go all out when buying your first home. In fact, many young adults spend their entire savings on a down payment for their first home. Over investing in a home can make life a little difficult especially when faced with situations where you have to relocate or job loss. You need to ensure that as much as you are buying the home, you still have something left in your bank account.
3. Living without a Budget
If you sail through life without a budget, you are likely to be surprised by your account balance after a few days. This is because you may spend a lot of money, some of which you may not even be able to account for. By writing up a budget, you can manage your expenses and savings accordingly.
4. Being Credit-Happy
There are very many tempting credit card offers out there, and these companies know that the can easily get young people on board. Unfortunately, many young adults take these credit cards and go on shopping sprees with the hope that they will settle the debts when they get their next raises. Being this credit-happy is dangerous and can lead to massive debt. Instead, use your credit card only as a convenient way of making payment and pay off the balance each month.
5. Lack of Health Insurance
Health insurance directly affects your finances. If you lack this cover, then you will be forced to spend money out of your pocket each time you go to a hospital. This is quite expensive especially if you run into an accident. Although health insurance may not seem like a necessity, ensure that you are covered nevertheless.
6. Lack of an Emergency Fund
It is known as an emergency fund for a reason. Unfortunately, many young people spend their money right up to the limit. This means that when they are faced with an emergency, the only option available for them is a high-interest loan. Such loans usually turn out to be very expensive, and that is why you need always to have an emergency fund.
7. Living in Expensive Apartments
All young adults want to live in posh places so that they can be respected by their peers. Although this will earn you their respect, you are doing so at the expense of your financial freedom. Paying high rent limits your savings and could even result in a perennial financial crisis. Simply look for an affordable apartment that will also make it easier for you to save for your first home.
8. Borrowing for a Wedding
Money and emotions never go together. In the past, lavish weddings were always paid for by the bride or groom’s family. Borrowing for a wedding can plunge you into debt. Given that average wedding costs just over $28,000, you will have to borrow probably twice or even thrice that in order to fund a lavish wedding. Small weddings may disappoint a number of your relatives, but it is at least ensuring that you are securing your future.
9. Differentiating Needs and Wants
When many young people get a source of income, they feel like they have a lot of money considering the tight budgets they survived with in college. This leads to a culture of buying anything they fancy. While some of these purchases may be useful, many of them can be avoided but since they do not really know if they need or want the items, they still buy them. This is why you must ask yourself if you really need or want the items before making a purchase.
10. Rushing to Clear College Loans
While settling your debts is commendable, you should never be in a hurry to clear off your college loan. Assuming you decide to have it settled in a five-year period, you will have no debt to bother you but at the expense of your savings. Based on your earnings, decide how much you will be servicing the loan without having a huge impact on your finances.
When you come out of college, there is so much you feel you can do with your money, and that is what leads to some if not all of these mistakes. Luckily, by going through this guide, these tips will ensure that you do not end up in a financial crisis.