Financial wisdom often comes with age, and is the result of mistakes made earlier in life. Many 20-somethings make similar mistakes, and ones that can set them back financially for years if they are not careful. Keep these ten mistakes in mind as you begin the plunge into adulthood.
Student Loan Debt
Not everyone is fortunate to have a college fund, and college can be expensive. Avoiding debt will take some advance planning which starts in high school. Many colleges have academic and athletic scholarships available for prospective students. Combine college offered scholarships with work study and private scholarships, and you can often pay for a four year degree without the burden of debt. Avoid them completely, and it becomes a non-issue. Remember that student loans stay with you forever, not even bankruptcy can get rid of them.
Credit Card Debt
As much as advertisers might want you to believe this, credit card debt is not a required part of adulthood. Cash is a much better way to do things. Imagine, not having the stress of paying interest or minimum payments. Many college students leave college not only with student loans, but with credit card debt used to finance their college lifestyle. If left unchecked, a dangerous financial spiral ensues.
A car payment is not a required part of adulthood. Many Americans find themselves with car payments that rival their mortgage payment. Remember, as a 20-something, your first car does not have to be a brand new BMW. Save your money, and trade up gradually. Skip the car payment and that overextended feeling.
Lack of Savings
An important financial rule of thumb is to pay yourself first. Many financial analysts recommend a six month emergency fund in order to weather times of financial hardship. This can seem at first like a daunting task. Remember that saving a little bit consistently over time can add up. Link your checking and savings accounts, and setup a small transfer amount each week automatically.
Lack of Budgeting
An important mistake that 20-somethings make is that they have no idea what they spend their money on. Normal in America has become living from paycheck to paycheck, and being broke at the end of the month. Strive against normalcy, and spend your hard earned money intentionally. Make a budget and stick to it.
Skipping Health Insurance
It is easy to get caught up in an invincibility syndrome if you are young and healthy. Even with this being the case, if your employer offers an insurance plan you should participate, even if it is in a high deductible plan. If something catastrophic does happen, mounting medical bills could land you in bankruptcy court.
Out of Control Debt
Living on credit is a dangerous and addicting habit that many find themselves getting into. Having too much debt continues to pile up and eventually they need to choose how to dig themselves out. Debt, settlement, consolidation or even bankruptcy is becoming the norm. Not getting help could be a very bad decision and could cost you for many years. If you choose to go through debt consolidation, TopTenReviews offers a chart comparing some of the best companies to deal with. However, learn to live within your means instead on the plastic cards.
Skipping Retirement Savings
Due to the power of compound interest, it is never too early to start saving for retirement. If your employer offers a 401K or other retirement plan, take full advantage of it, especially if they match funds. If you do not have this benefit, a ROTH or traditional IRA can be opened online, often with as little as $500. Open an account, and begin a weekly transfer immediately.
Purchasing a Home Too Soon
Homeownership takes deliberate planning and saving to do successfully. This often means that it may take several years after graduation before taking the plunge. Use that time to save up a down payment and perform thorough due diligence in selecting your home.
Sure, we’d all like to spend hours playing X-Box or updating our Facebook status, but that’s not how responsible adults spend their time. Take some time investing in your financial education. Learn about investing basics and how to apply them to your finances.
Don’t make these mistakes as you are graduating and starting to get into your life and career. Learn to be smart with your money and budgets. Plan accordingly and stick to a budget. Learn from others mistakes and how to avoid these pitfalls.