Top 5 Financial Blunders for Young Adults
This is Kyle Davis – financial advisor with Integrity Financial Group in Orlando, Florida. Today I’m going to focus on a few very important habits that could be costing you tens of thousands over the course of your working life. These bad habits are particularly dangerous for younger adults ages 25-35. This age group has the opportunity to get a HUGE head start on saving for their future goals, whatever those goals may be. Ever heard the phrase, “Time is on your side.”? Earning interest on your money works best over a long time frame, uninterrupted. Would an extra ten years of doing the right things make a difference on your overall financial picture? You bet it would.
#5 Filet Mignon Tastes / Ramen Noodle Budget
Let’s face it, as far as food goes it’s very easy to get caught up in spending a lot of money unnecessarily on fast restaurant lunches and effortless dinners out… but these luxuries come at a huge premium. When you’re looking at a 10 dollar lunch when you could have packed something from home for 2-3 dollars, over time that really adds up! Not to mention the 4 dollar drive-through coffee. It’s not reasonable to ask someone to cut these pleasure out altogether, but be conscious of your habits and enjoy treats in moderation. My wife and I only go out to eat at a restaurant once a week. It was one of the easiest things we’ve ever done to help our budget, plus now it’s more special and we look forward to it even more!
#4 Misunderstanding Big-Ticket Payments
Many of us think that just because we have the monthly cash flow to support the payments on a big-ticket item, it means we can afford it. We are actually spending our future away. We get what we want today, but we’ve effectively pre-spent money that we’ll never be able to get back. What if you’d been able to earn interest on that $3,000 that you spent on a new 60” flat screen and entertainment center from 5 years ago? What would it be worth today? I’m not saying to not make your big purchases, but you need to be aware of the real implications of spending your future and how you are making that payment; which brings me to my next point…
#3 No Savings
It may seem obvious that everyone needs extra savings or an “emergency fund”, but did you know that you could end up paying double duty for your big purchases without one? Think about it. If you can’t pay cash for a purchase, you are forced to finance. You sacrifice your future to get what you want today. You’re forced to pay interest on top of the original purchase price, further adding to your monthly payment and future obligations. Again, just because the monthly payment fits into your budget does not mean you’re doing a good thing.
#2 Bad Credit
One can end up with a bad credit score for a number of reasons. A few of which include lack of credit history, late payments, maxed out balances, and types of credit in use just to name a few. Even if you are diligent about saving and setting aside money to avoid debt there will be times in life where you will have no choice but to finance. For many people these include things such as vehicle purchases, student loans, and especially home purchases. A bad credit score can force you to pay a higher interest rate to have the same access to capital as someone with a good score. You pay more, because the institution is taking a bigger risk on you. While we’re on the subject of credit, let’s move on to for top financial blunder for young adults and that is…
#1 Living the Plastic Lifestyle
Carrying a balance and living off of credit cards is the ultimate mistake for young adults. You effectively end up paying more than the regular price for EVERYTHING YOU BUY. Not only are you paying for the price of the purchases, but since you carry a balance there is also a daily compounding interest rate for any charges that you do not pay off quickly. There are thousands of articles out there on how to “get out of debt” but it simply comes down to time, patience, and commitment. Finance charges are your worst enemy at ANY age.
Nobody can avoid mistakes 100% of the time, but the more you think about these things early on in life, the more headaches and money problems you might be able to avoid later.
Don’t be a stranger!
-Kyle A. Davis
Integrity Financial Group – www.financialservicesamerica.com