Nobody expects young adults to have it all together. Becoming an adult is a learning curve, so you're going to make a few mistakes along the way. But some mistakes – especially financial mistakes – are avoidable. You might have a lot to learn about being a grownup, but this doesn't mean you have to make life harder for yourself.
Here are seven money mistakes you might be making without realizing it.
As an undergrad, you might like the idea of going to grad school. In your mind, you’re opening the door to more job opportunities and a higher salary. But depending on your field and major, going to grad school might be a waste of time and money. Do your research and seriously consider whether a graduate degree will improve your job prospects. After spending an extra one or two years and thousands of dollars to get a graduate degree, you might find yourself competing for jobs with people who only have a bachelor’s.
Credit history might be the last thing on your mind as a college student. But without a credit history, it'll be harder to buy a car, get a mortgage or finance anything once you complete college. If your parents are willing to cosign – and if you can afford credit – apply for a credit card to start building your credit history. You can get a secured credit card which doesn't require a credit score or credit history. These cards do require a security deposit, but it’s much easier to get a secured card than an unsecured credit card.
Being approved for a credit card is just the first step to building a good credit history. You also need to know how to use credit. If your parents didn't teach you credit management skills, head online and educate yourself. With any type of credit account, it's important to pay your bills on time every month, and you should only charge what you can afford. Don't get in over your head. Credit mistakes made as a young adult can follow you throughout your adult life and complicate your finances
If you're young and living at home with a job, this is the best time to start saving your money. It might be harder to build a financial cushion once you move out and start paying bills. And if you’ve already graduated college and found your first job, don't delay starting a retirement plan and contributing to a 401(k), if offered by your employer. If your employer doesn't have a 401(k) plan, speak with a banker about opening an individual retirement account.
Mostly young adults dream of buying their first place. But if you buy a home too fast, you’ll make life harder for yourself. Only buy a house once you’ve found steady employment and you’re receiving consistent income. If you get a job after college, but don't plan on staying because you hate the work, this isn't the time to jump into a mortgage. Once you decide to buy a house, spend less than you can afford. This way, you’ll have disposable income for paying down student loan debt and saving an emergency fund.
Your parents are here to offer support and encouragement, but eventually, you’ll need to start living on your own dime. Even if your parents are more than willing to help you financially, challenge yourself and try to make it on your own. The less your parents spend supporting you, the better they can prepare for their own future.
Some young adults hate the word budget. However, a budget is an effective spending plan for your money. It's a way to evaluate what’s coming in and what's going out. You’re less likely to overspend and end up with credit card debt.
Your personal finances won't be perfect as a young adult, but if you recognize common mistakes, you can save yourself a lot of financial heartache and pain.
What are other money mistakes young people make?