Many young people often make an assortment of financial mistakes. With retirement far off in the future and not having major financial responsibilities, they often live in the moment and do not think about tomorrow. But this is not without consequence, as retirement and big expenses will come sooner than they think.
Here are 5 common financial mistakes that young people make and how to avoid them:
1. Not Buying Life Insurance
Young people often think that getting life insurance is something that they can put off until they get older. But the best time to buy life insurance is when you are young, as the premiums will be significantly lower, saving you money in the long-term.
Also, while you may feel immortal at a young age, this is simply not the case. Accidents and disease can happen to people of any age. You need to ask yourself the following important question: if you unexpectedly died, would your loved ones be taken care of financially?
2. Not Saving Money
There is an old expression: “save for a rainy day.” The reason that this expression is so old is that there is a lot of truth in it. You never know when a large expense will hit you. It can come when you are young and when you least expect it. The best way to prepare for it is by saving money.
There is another good reason to save money. It can help you buy something that you could never afford otherwise, like the dream vacation that you have always wanted to take.
Saving money might seem difficult, especially during these shaky times, but there are a lot of creative ways to earn a bit of extra money to put aside.
3. Not Building Credit
Not that long ago, young people would get credit cards at a young age and would then begin building credit histories. But along with the financial reform legislation that was enacted a decade ago, it became harder for young people to get access to credit. As a consequence, many young people today have not build up their credit histories like the generations before them did.
This is unfortunate, as building your credit is important. While you may not be looking to buy a home today, at some point in the future you likely will, and your credit history may determine whether or not you are approved for a mortgage. Credit histories can also determine if you are approved for other major purchases as well.
It is important to note, though, that building up your credit does not mean building up your consumer debt.
4. Spending Too Much Money
To have enough money for everything you need requires that you do not spend all that you earn. But young people, more than any other age group, have a tendency to overspend. To overcome this, you should create a budget. From your monthly income, first allocate money to the expenses that you absolutely cannot live without, such as rent and recurring payments. Then, allocate money for both investing and savings. Finally, with whatever money remains, you can spend on what you enjoy, such as going out at night and buying things.
Keep in mind that making a budget is not enough. You then need to stick to it.
The time to avoid financial mistakes is when you are young. By following the tips outlined in this article, you can help secure your financial future.