When you are young and, all of a sudden you have access to all kinds of money. You start getting paid for your job. Lenders are breaking down the door to offer you credit. And the world seems like your oyster – no responsibilities, and nothing holding you back.
However, it’s also a time of life when you are incredibly vulnerable. You tend to avoid keeping track of your finances because you don’t understand how important it is. And you also don’t understand that when people lend you money, it’s to hook you into a long-term repayment scheme plan that will end up costing you more than you might think.
With this in mind, I thought I would share some of the biggest financial mistakes made by people like me, you, and everyone you know! Let’s take a closer look.
The credit card conundrum
When you are first offered them, it feels like credit cards no credit check loans basically give you free money. But nothing could be further from the truth. A lot of young people with little experience of how financial products work will use their cards to withdraw cash, spend the credit on necessary living expenses, and end up in a lot of unnecessary trouble. Never forget that, essentially, spending on a credit card is spending your future income – and more – before you even earn it. And always reads the small print to ensure you understand all the charges you face if you miss payments, only make the minimum payments, or use the card for cash advances.
No financial planning
When you are young and independent for the first time, your mind is certainly not on your future. The focus is all about right now. However, every month that goes by with you wasting your earnings without proper financial planning will impact you in the future. It’s important to start planning now – even to the extent of setting up a retirement fund. The earlier you start, the better. And when the time comes to get married, have children, or deal with significant life changes that will eventually happen – you will be in a much better and more secure place to deal with it all.
The boyfriend/girlfriend bank account
OK, so you are madly in love and plan on being with your current squeeze forever. So you do what lovers do and open a joint bank account. It’s a romantic move, for sure, but is it wise? In short, the answer to that question is a very definite no. Combining your finances too early can end up causing you more pain and trouble than you think. And it could be one of the most expensive financial mistakes you will ever make. Situations can change incredibly quickly, and your joint finances can change even quicker – as can the status of your relationship. It’s also important to understand that if your partner has a bad financial record, it can reflect and impact on yours, too.
No rainy day fund
When you are young, you feel like you are indestructible. However, the reality is that you are probably at your most vulnerable – especially when it comes to jobs and stability. For this reason, it’s vital that you put some money aside in an emergency fund to ensure you can get through the inevitable rough periods. Financial experts reckon you should allow for at least 6-9 months of living expenses so that you are completely covered in the event of a job loss or other unfortunate life event.
The small stuff
When you have lots of disposable income and no dependents to spend it on, there is a tendency to be wasteful. A pack of cigarettes every day, and a few nights out at the local bar and clubs is probably enough to relieve you of $100 a week at minimum. Then there are the lunches you have every work day, and perhaps the Starbucks each morning. Throw in a few magazines on your commute to work, impulse buys on clothes and trainers, and you are probably looking at another $100 a week a least – meaning you could be spending close to $1000 a month on unnecessary things. All these little things add up and could be spent much more wisely in other areas.
On the subject of unnecessary spending, it will help a lot if you create a budget to work out how much of your wages is available after fixed expenses and savings. Sadly, budgeting is not something young people are renowned for! Ultimately, if you don’t track your money, the reality is that you will have no idea of where it is going. And that will just lead to more wasteful spending and a less secure financial future.
While all these budget considerations should be made to save money for things like buying a house, it’s easy to go the too far the other way. For example, let’s say that you like living the high life, and want to reside in a high-quality area that costs a lot of money. Your high rental or mortgage payments leave you with little to spend, and there is a chance that you will end up not being able to enjoy your younger years – you’ll be stuck inside at home with no cash to go out. You will also be more of a risk for credit card spending, which – as we discussed above – young people often use as a way to make up the difference in lifestyle choices.
Putting money first
You’re only young once, as the saying goes. And putting money first is probably the worst thing you can do. You will lose friends, put a strain on relationships, and possibly even sacrifice your health by chasing the big bucks at an early age. The truth is that money isn’t everything, and if you spend too long working and trying to impress your employers, you will miss out on a lot. Sure, you might become a millionaire before you hit 30. But how many friends will you have – or experiences that you can remember? Wealth includes more than just a seven-figure annual paycheck, so look after your health and happiness – and the money should take care of itself.