For IT professionals as well as all young adults, money management can be difficult but is necessary. One or two bad financial habits can quickly lead to growing debt and even cause you to come up short month after month. The newest generation of adults entering the financial world want to achieve financial independence but can sometimes stumble into pitfalls which has the potential to negatively affect their financial future. Below are some of the most common mistakes that young adults make when it comes to money management.
1. Spending Beyond Their Means
Many young adults fall into the trap of living well beyond their means of support. Whether it is the need to keep up with today’s trends or continue spending in the same manner they did when they lived with their parents, these young adults are finding themselves in serious debt at a young age. This debt and related credit problems can create the need to borrow money at a higher interest rate and increase the stress of trying to get ahead financially.
2. Not Staying on Top of Their Credit Score
Good credit is a crucial part of a strong financial future. Young adults will need better credit than most to help them secure financing for a home, business, or auto loan. The rule of thumb is that a credit score should be checked at least every six months so that any errors can be disputed, problems with credit can be addressed, and any possible misuse of credit or accounts will be identified
3. Not Creating or Sticking to a Budget
While budgeting is not one of the most exciting things to do with free time, it is a vital tool to help secure a solid financial future. Many young adults have the mindset that a budget equals deprivation when it actually can reduce stress and help put them on a better path to achieving their financial goals. It is critical to create a budget that sets limits for all of the expenses and even more crucial to stick to these limits. When budgets are not adhered to, card balances will rise and savings will be depleted, putting financial goals in jeopardy.
4. Not Saving for Retirement
Even when young adults have a budget, they may not set aside money for retirement. While retirement may be the furthest thing from their mind, investing in a retirement account early will not only help ensure that you have the proper funds that you will need for your retirement but will also allow your money to grow longer. This means a better return on the money than would be gained by investing it later in life. For young adults without a lot of expenses, the best route may be to invest up to what the company will match.
5. Failing to Plan for Emergencies
Emergencies can happen at any stage of life, and when they do it can have devastating consequences on finances. This makes having an emergency fund crucial to get through these troubled times without having to go into debt or delaying payment on bills. A good rule of thumb is to have at least three to six months’ worth of income in savings, and it is important to replenish the funds once they get used.
6. Lack of Understanding of Money Basics
Standard curricula in public schools no longer focus on financial literacy skills. These courses used to educate students on the basic money concepts such as debt, credit, and interest, which would teach them how to manage money and make smart financial decisions. With many schools abandoning this curriculum, young adults are now forced to learn these concepts on their own or seek help.
Whether it is a lack of understanding finances, failing to plan, or overspending, young adults are susceptible to missteps when it comes to finances. The best way to stay on track is by working to minimize mistakes and continuing to seek education on money management to help secure a financial future.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.