When it comes to money, a lot of people can make easily avoidable money mistakes, especially young adults. From mismanaging credit cards to living beyond means, simple mistakes take a toll on your finances eventually.
In achieving financial freedom, starting early is key. Practice being financially responsible so you can build your wealth earlier.
Here are the four biggest money mistakes you should avoid as a young adult and how you can start to avoid them.
Rushing to Buy a House
While real estate is a good investment, rushing to buy a house will not help you in the early years of your career. Keep in mind that owning a house requires a large down payment and is a serious commitment. Financing terms can be more than ten years, which means you need to pay an installment or monthly fee for that long period.
Try to weigh your decision based on your current situation and goals. If you are still earning a basic salary and you don’t have a credit history, you can’t get a mortgage.
Postponing Retirement Saving
By saving 20 percent of your paycheck for 45 years, you can save up to a million dollars or more. The thing about saving is, you can do it earlier and reap the benefits when you turn 60. Delaying this will only give you a headache once you are already 30 and without savings.
If 20 percent seems huge, you can always set it lower. In addition, investing is also important to improve your financial portfolio and earn extra.
Not Building Credit
Some people opt to not use credit cards and pay only by cash. While this works, you cannot build a credit history on cash. Opening credit cards can help you build good credit only if you know how to manage it. You can open a student credit card in college or become an authorized user of your parent’s account.
Credit history matters because this is one of the considerations of lenders, banks, and insurance providers for issuing interest rates and approving your applications. If you have a good credit score, you can enjoy lower interest for auto loans, mortgages, and more. You can request a free annual credit report to check your credit, loan, and payment history.
Living Paycheck to Paycheck
Living beyond your means and spending all your money are toxic habits. Just because you are young doesn’t mean you can live paycheck to paycheck. If an emergency comes up, how can you survive? A sudden layoff can be tough because you will not have a source of income. Getting a new job will also take time – a minimum of two weeks.
By saving and having emergency funds, you can rest easy knowing that whatever happens, you have something to look up to. To get started, you need to consider budgeting your money and setting aside the percentage of your salary for savings.
As a young professional, it’s okay to commit money mistakes a number of times. Just make sure that you learn from these slipups and recover immediately. You can always have fun and enjoy your money, but make sure you are saving enough for your future.