Top Financial Fudge Ups of Young Adults

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Top Financial Fudge Ups of Young Adults

Someone may be naturally “smart,” but wisdom, in the true sense of the word, is something that comes with age. Much of this wisdom is gleaned from the mistakes we make in our younger days. No one is perfect and you will screw up lots, in all aspects of your life, from finances to relationships.

Experience is ultimately the best teacher. But, this does not mean you are at the complete mercy of youthful folly. While making financial mistakes helps educate an individual, managing your finances poorly can have long-term repercussions not be easily fixed by wisdom alone.

While you may not have the wisdom of your older counterparts, it is important you start making good decisions sooner than later. Here are some of the more common mistakes young adults make when it comes to money.

1. Paying More for Housing than You Can Afford

.Just because you have the money in your checking account every month to cover your rent or mortgage, does not necessarily mean you can afford that house or apartment. In an effort to get the nicest place possible, you end up may sacrificing most of your money, and if not that, most of your potential retirement savings.

At the time you may convince yourself it is a good idea. The place is so nice, you certainly won’t mind trimming back spending in other areas to be able to call it home. But, what usually ends up happening is you accumulate unnecessary debt to subsidize your lifestyle; money that would be better off in your savings account or retirement fund is going towards paying for a house or apartment that is beyond your means.

2. Getting into Bad Habits with Credit Cards

Credit cards in and of themselves are not evil. They are great for a financial emergency; you can use them to fund larger purchases, and pay it off in the next few months—by the way, if you can’t pay something off within about six, you probably can’t afford it.

Bad financial habits can be tough to break, and if you are not using your credit cards in the most responsible way now, you can be setting the stage for ever-mounting debt for years to come. If you are using credit cards to pay for groceries and other necessities, because you want extra cash to hit the bar on Saturdays, you need to sit down and take a look at your spending habits. If you tell yourself you will pay off a purchase within a set amount of time, but have yet to actually do that, and your debt keeps mounting as you repeat this behavior over and over, you need to stop yourself now.

While on the subject of credit, always remember to monitor your credit report to ensure all information is accurate. Poor credit scores cause all sorts of problems, from not getting a loan to not getting a job. If your score is in the toilet, it is important you take steps, and find resources, to repair your credit. If there is inaccurate information, get it fixed. If you are having trouble meeting financial obligations, reach out to your creditors.

3. Delaying Retirement Savings

If you are in your 20’s or early 30’s, retirement seems very far away. With each year you delay saving, you keep telling yourself you have plenty of time. And before you know it, you will end up like the millions of people who don’t know if they will ever be able to stop working because their retirement accounts have a dismal amount of money in them. It is hard to think about long-term financial needs, particularly when your immediate financial situation is less than ideal. You feel like you need that money now, and there is no way you can possibly sock it away, not to be touched for decades.

The problem many young people make is underestimating the effects of even putting small amounts away right now—when an investment has decades to grow, seemingly small contributions really add up. If someone invested 1,000 dollars at the age of 20, it would grow to 73 grand, given an average interest rate of 10 percent a year. Not too shabby, huh? So, just because you can’t max out your 401(k) or IRA contribution doesn’t mean you shouldn’t bother at all. If you begin to save in your 20’s, you may need to only set aside as little as 10 percent of your income to reach your financial goals for the long-term. Just start putting something away.

4. Not Saving Money Automatically

If you are like many young people, you may only be padding your savings account when you have something left over at the end of the month. It is the last thing you think about. This is a big problem. It needs to be the first thing you are thinking about. One of the best ways to build your savings account is set up automatic withdrawals from your bank account. So, you want to sit down, figure out what is coming in and what is going out. After factoring in expenses that are non-negotiable, and creating a reasonable budget for discretionary spending, decide on an amount of money you can put away each month.

Being a financially responsible person will reap you countless benefits, and it is never too late to start. The sooner you get better at managing your money, the better off you will be. Steering clear of these top mistakes is a great place to start.

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