The following is a guest post by Lisa at Health Insurance Comparison, an Australian personal finance blog created to help readers figure out how to properly compare health insurance options.
People of all ages can be clueless about saving, budgeting, or handling money: singles who are fresh out of college and settling into their first career position may find that the sudden influx of money each payday is pure spending temptation. Consequently, they end up making very big mistakes that could affect their ability to get things like mortgages and car loans. Given the current state of the economy, young adults need to tackle their finances early on more than ever before.
Financial Mistake #1: Mountain of Debt.
When the pre-approved credit card applications start filling your postbox, it’s extremely tempting to accept all offers – potentially ending up with a mountain of debt! Establishing a select amount of credit is an acceptable way to build your credit history – but only of you can maintain a good grasp on your purchases, and keeping the payments up to date. Falling victim to the logic that you can buy now and pay letter will only get you bad credit. Avoid piling on debt at all costs.
Financial Mistake #2: Buying New Car.
Tooling around town in a shiny new auto would be a great way to celebrate your graduation from University or a new career – but is it necessary? Taking out a loan on a new vehicle isn’t the most cost-effective way to save money on transportation - and may serve to drown you in unnecessary debt. For the most frugal approach, try using public transportation or carpooling. If you absolutely must have a car, buy it used, and pay it all upfront. Defaulting on an auto loan can affect your ability to get a mortgage, or in some cases even rent an apartment later on.
Financial Mistake #3: Living Beyond Your Budget.
Frugal living is an ongoing process. Even though you may have a great retirement savings plan at your place of employment, sticking to a budget and living within your means is necessary in order to save enough for the larger purchases in life. Planning your shopping list and bargain shopping for food or clothing is imperative, as is keeping your entertainment expenses under control.
Financial Mistake #4: Not Reading the Terms of Your Student Loan Agreement.
One of the first financial mistakes many people in their 20’s make is not following the details of their student loan agreements. Know the terms of your agreement, including how long of a grace period you have, and understand when your student loan payments will kick in, post-graduation.
With a good understanding of the student loan process, you may then make the decision of how you want to tackle repayment of your student loan. Do you want to pay it off quickly or consolidate? What tax breaks are all available to you? These are all important questions to keep in mind – and forming a strategy before adding more debt to your plate is advisable.
Financial Mistake #5: Fear of Investing.
With the current state of the economy it’s easy to believe that investing is too risky. The truth is that you take risks with your money on a daily basis so unless you make some blatantly obvious bad moves investing can actually be a good thing, especially if you are young. Investing is meant to be a long term relationship, that way it can ride out all the bumps in the market. Being in your 20s is the perfect time to start because you have time on your side. Even if the markets are doing terribly over time you will acquire more interest than a bank can offer you.
Financial Mistake #6: Not saving for retirement.
The younger you start in saving toward retirement, the better off you will be in the long run. If your employer matches even a small percentage of your contribution then do not by any means pass up the opportunity to participate. Another solid consideration is to open up an individual retirement account through a financial institution or brokerage firm.
By avoiding these common mistakes, you will not only be avoiding a bumpy ride later on, you will also be cultivating healthy financial habits that will help you for years to come.
What financial tips would you have for a 20-something entering the personal finance arena? What mistakes did you make in your 20’s? Share them with us here!