Young Adult Financial Guide
Common Mistakes Young Adults Make with Money and How to Avoid Them
Everybody makes mistakes with their money. The important thing is to keep them to a minimum.
Buying items you don’t need…and paying extra for them in interest. Every time you have an urge to do a little “impulse buying” and you use your credit card but you don’t pay in full by the due date, you could be paying interest on that purchase for months or years to come. Spending money for something you really don’t need can be a big waste of your money. But you can make the matter worse, a lot worse, by putting the purchase on a credit card and paying monthly interest charges.
Research major purchases and comparison shop before you buy. Ask yourself if you really need the item. Even better, wait a day or two, or just a few hours, to think things over rather than making a quick and costly decision you may come to regret.
Getting too deeply in debt. Being able to borrow allows us to buy clothes or computers, take a vacation or purchase a home or a car. But taking on too much debt can be a problem, and each year millions of adults of all ages find themselves struggling to pay their loans, credit cards and other bills.
Learn to be a good money manager by following the basic strategies outlined in this special report. Also recognize the warning signs of a serious debt problem. These may include borrowing money to make payments on loans you already have, deliberately paying bills late, and putting off doctor visits or other important activities because you think you don’t have enough money.
Paying bills late or otherwise tarnishing your reputation. Companies called credit bureaus prepare credit reports for use by lenders, employers, insurance companies, landlords and others who need to know someone’s financial reliability, based largely on each person’s track record paying bills and debts. Credit bureaus, lenders and other companies also produce “credit scores” that attempt to summarize and evaluate a person’s credit record using a point system.
Having too many credit cards. Two to four cards (including any from department stores, oil companies and other retailers) is the right number for most adults. Why not more cards?
The more credit cards you carry, the more inclined you may be to use them for costly impulse buying. In addition, each card you own — even the ones you don’t use — represents money that you could borrow up to the card’s spending limit. If you apply for new credit you will be seen as someone who, in theory, could get much deeper in debt and you may only qualify for a smaller or costlier loan.
Not watching your expenses. It’s very easy to overspend in some areas and take away from other priorities, including your long-term savings. Our suggestion is to try any system — ranging from a computer-based budget program to hand-written notes — that will help you keep track of your spending each month and enable you to set and stick to limits you consider appropriate. “A budget doesn’t have to be complicated, intimidating or painful — just something that works for you in getting a handle on your spending,” said Kincaid.
Not saving for your future. We know it can be tough to scrape together enough money to pay for a place to live, a car and other expenses each month. But experts say it’s also important for young people to save money for their long-term goals, too, including perhaps buying a home, owning a business or saving for your retirement (even though it may be 40 or 50 years away).
Start by “paying yourself first.” That means even before you pay your bills each month you should put money into savings for your future. Often the simplest way is to arrange with your bank or employer to automatically transfer a certain amount each month to a savings account or to purchase a U.S. Savings Bond or an investment, such as a mutual fund that buys stocks and bonds.
Paying too much in fees. Whenever possible, use your own financial institution’s automated teller machines or the ATMs owned by financial institutions that don’t charge fees to non-customers. You can pay $1 to $4 in fees if you get cash from an ATM that isn’t owned by your financial institution or isn’t part of an ATM “network” that your bank belongs to. For more about how to save on ATM fees, see the tips from FDIC Consumer News online at www.fdic.gov/consumers/consumer/news/cnspr04/simple.html.
Not taking responsibility for your finances. Do a little comparison shopping to find accounts that match your needs at the right cost. Be sure to review your bills and bank statements as soon as possible after they arrive or monitor your accounts periodically online or by telephone. You want to make sure there are no errors, unauthorized charges or indications that a thief is using your identity to commit fraud.
Keep copies of any contracts or other documents that describe your bank accounts, so you can refer to them in a dispute. Also remember that the quickest way to fix a problem usually is to work directly with your bank or other service provider.
Final Thoughts
Even if you are fortunate enough to have parents or other loved ones you can turn to for help or advice as you start handling money on your own, it’s really up to you to take charge of your finances. Doing so can be intimidating for anyone. It’s easy to become overwhelmed or frustrated. And everyone makes mistakes. The important thing is to take action.
Source: FDIC
