Anyone between 18-35 years can be categorized as a young adult. This stage of people’s lives is mainly associated with self-realization and future planning. Well, while these two things are critical in everyone’s life, they often bring regrets, growth or mistakes.
We all have made a good heap of mistakes during this stage, and it’s totally OKAY! The most important thing is learning from the mistakes and elevating ourselves as a result. One of the most common mistakes that young adults do during this stage is related to money/income.
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Financial management may be relatively new to most people in this age bracket. I mean, this is the stage where most people are beginning to get jobs, or to get a stable income, so it is not new to make a few bad decisions here and there with your money.
This new opportunity for earning an income has left the door open for these 5 common financial mistakes. I have also made quite a few mistakes in this list, so don’t think that you are the only victim to bad decisions.
Also, remember that nothing is permanent. So, if you have already made these mistakes, there is still hope for you!
If you are yet to make these mistakes, read through them carefully and understand them so that you do not become a victim.
Let’s dive straight into these mistakes and analyze them.
- Started out with a very expensive house
I know, I know what getting your own space really means for most of us and I will not even attempt to minimize that. It is a dream for most of us to get a house of our own. But it is through this dream that most of us make one of the biggest financial mistakes of all time!
Whether it is a rental, or a bought house, make sure that you can comfortably afford it. In fact, according to Dave Ramsey, a seasoned financial advisor, your rent should only take up 25% or less of your income. So, if your rent + utilities are taking up more than 25% of your income, you are NOT being financially smart and that could really hurt your financial goals.
If you plan to get a house via a mortgage, ask yourself these questions first: have you cleared all other debts? How much do you have in your savings account? Will your income sustain payment of your mortgage and all your other needs? If the answer to most of these questions is a “no” then you are not ready to take up the burden of a mortgage! Do not start straining your budget too early because you will just start hating your life (which is what we all don’t want).
- Bought a brand new car because you deserve it
After months and months of hard work and a steady paycheck, you have convinced yourself that you actually deserve a car. You are tired of taking a train to work or driving your old college car. You have ticked all boxes and decided that not owning a car is totally unreliable.
Before you all come at me, let me explain. I agree, there comes a time when not having a car is an inconvenience. But, do not strain your already tight budget to buy a car. Get to a place where you plan your budget, then you save as planned and still remain with a surplus amount. Plan to buy a car only when you have this surplus.
A new car will depreciate in value over the years. In fact, it might depreciate by 60% in the next 5 years of its life. That is over half of its life lost! And that’s not all. You will get into the burden of paying for insurance year after year, pay for car maintenance and spend on fuel almost each and every day. You see why taking a loan to buy a new car is not a so good idea? Or why buying a new car instead of clearing off your student loans is not so clever?
If you have cleared all your debts and have a surplus from your income, then it’s okay to consider buying a new car. Otherwise, save your money, or invest into something that will give you good returns until you are stable enough to afford all the expenses that come with owning a car.
- Got a dog/cat to complement your life
Let’s be clear on one thing. If you have not yet figured out your financial life, do NOT bring another living thing into the equation!
It is not fair to even the animals themselves to bring them into an environment where you are struggling to afford their food and medical care.
A pet brings so much life to our rented apartment, but if your financial life is not in order, sacrifice not having a pet for some time because they are expensive!
- Ignoring your debt
This is one of the worst mistakes you could ever make. No matter how much debt you have, you have to face all of it and clear it off. As a matter of fact, I recommend that from the very first paycheck that you get, enter into a convenient plan to clear off your debts.
You might feel strained while paying it, that is no lie, but believe me, life will be so much better when you finish clearing off all your debts. You will no longer have to live looking over your shoulders and you will be able to afford a better and stress-free lifestyle.
Remember that the more you ignore it, the more its interest grows, so the more you have to pay! So, it is in your best interest to clear it off as soon as you can.
- No Budgeting
If you do not budget, you are definitely going to make all the wrong choices with your money. Living without a budget is literally reckless living. It is living without a plan or a purpose. You are moving towards nothing!
Budgeting will help you develop a healthy financial habit. You will have a clear picture of how much your spendings are, how much your savings are, the unnecessary things you are spending your money on, etc. This way, you will develop the best and most efficient plan for your money.
I hope you have learnt something from these mistakes. Improve your financial management skills by avoiding these mistakes.