Blog Highlights
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Budgeting isn’t optional: Track your spending to stay on top of your goals and avoid unnecessary debt.
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Using credit responsibly builds your score: Misusing it can leave you with costly interest and long-term setbacks.
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Start saving early: Even small contributions to an emergency fund or retirement account can have a big impact over time.
5 Personal Finance Mistakes Young Adults Make (and How to Fix Them)
It’s never too soon to think about financial goals for your future. In fact, young adulthood is the best time to start taking a good look at your financial goals and making a plan for success. For young adults, it's a critical time for building a financial foundation – but it's also easy to fall into common money traps where mistakes can happen. That’s all part of learning how to responsibly manage money and knowing mistakes are fixable, but understanding how to avoid or correct them early is the real key to long-term financial success.
Here are some common financial mistakes made in young adulthood and how to fix them.
1. Ignoring a Budget
While it’s not incredibly fun to stick to a budget, it's especially important in understanding exactly where your money is going. Not having a budget you can stick to ultimately leads to overspending and lack of savings. At this time in your life, setting a budget and building your savings is crucial for preparing for important upcoming life events like buying a car, a house, traveling and starting a family.
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Quick Fix: Start tracking all of your expenses for one month, then create a realistic budget using a spreadsheet or easy-to-use free app based on your expenses. It’s also a good idea to utilize automated bill pay and budgeting tools to stay consistent. Consider using online money tools, including mobile banking to help you get started and keep you on the right path!
2. Misusing Credit Cards
Carrying a lot of high-interest debt from credit cards is the worst money habit! Having a plan in place for when to use your credit card, like for dire emergency situations, is the best way to avoid this situation. We all have the best intentions of paying down the debt quickly before the interest accrues, but unfortunately, that doesn't always happen like we hoped. Before we know it, the interest compounds and the debt continues to grow.
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Quick Fix: If you have incurred more high-interest credit card debt than you’d like, plan to pay more than the minimum payment each month to get the debt paid off. Also, set spending limits and avoid using the cards when possible and, if you must, use them responsibly so that it helps to build your credit and not hurt it. A smart money move is to consider a balance transfer to our lower-interest credit card, to avoid high interest and pay off the debt faster.
3. Skipping an Emergency Fund
One of the quickest ways to get into debt is to not have a savings account for unexpected expenses. At this time in your life, your budget should include at least a monthly deposit into your savings account so that you are prepared in case of an emergency or unexpected expense that could wreak havoc on your finances.
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Quick Fix: Open a savings account if you don’t already have one. Start with a small goal of around $500 – $1,000 and continue to build over time. It's a smart money move to set up automatic transfers to the account each payday, so you're saving on a regular basis. It’s also important to note that this money should only be used for true emergencies, not vacations or unnecessary purchases.
4. Putting Off Retirement Savings
Now is the time to start saving for your retirement because the earlier you start, the more time you allow for your money to grow. While it might seem like you have plenty of time to worry about this, delaying retirement contributions means missing out on compound growth that really adds up over time. You definitely want to start thinking about saving for your retirement now to ensure you have the money you need later in life.
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Quick Fix: To start saving now for your retirement years, open a Roth IRA or contribute to your employer’s 401(k). Starting now to build your retirement savings is a savvy money move that offers a huge long-term payoff. Even if you just contribute $25 a month, you can increase the amount over time and will reap the benefits of your budgeting as you approach retirement.
5. Avoiding Credit Altogether
Having a good credit rating is crucial for financial success at any age, as it's necessary for everything from renting apartments to getting better interest rates on loans. And while it may seem like a good idea not to open credit accounts that may result in some debt or lead to bad credit, it’s also just as problematic to have no credit history at all.
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Quick Fix: The key to a good credit score is to build credit in safe ways that can help keep your score high and build a good history of on-time payments and responsible money management. Some excellent ways that are safe to build credit include using a secured loan or credit card, becoming an authorized user on an established account, and paying student loans on time.
Peach State is Here to Help You Build A Solid Financial Future Starting Now!
Don’t be discouraged by minor financial mistakes or mishaps; they are life lessons and opportunities to learn. You'll gain the necessary personal finance skills that'll help you reach your financial goals and independence. We're here to help you navigate your journey and achieve success! We invite you to visit your local Peach State FCU branch to help you build a bright financial future.
