It’s never too soon to start thinking about your 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 is a critical time for building a financial foundation - but it's also easy to fall into common money traps where financial mistakes can happen. That’s all part of learning how to responsibly manage money and these mistakes are fixable, but learning how to avoid or correct them early is the real key to long-term financial success.
Here are some common personal finance mistakes made by young adults and how to fix them!
1. Ignoring a Budget
While it’s not incredibly fun to stick to a budget, it is especially important! Not having a budget you can stick to ultimately leads to overspending and lack of savings. At this time in your life, adhering to a set budget and starting to build your savings is crucial for preparing to buy a home and other important upcoming life events.
- 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. It’s also a good idea to utilize automated bill pay and budgeting tools to stay consistent. Members Plus CU has online money tools to help get you 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 pertaining to credit card use 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 does not always happen like we hoped and the interest compounds and the debt continues to grow.
- 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 a lower-interest credit card, like those from Members Plus to avoid the 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.
- 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 is a smart money move to utilize automatic transfers to the account each payday, so you are saving on a regular basis. It’s also important to note that this fund is only for true emergencies and should not be used for vacations or frivolous items.
4. Putting Off Retirement Savings
Now is the time to start saving for your retirement! It might seem like you have plenty of time to worry about this, but 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.
- 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 is 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.
- 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 credit card, becoming an authorized user on an established account, and paying student loans on time.
MPCU is Here to Help You Build A Solid Financial Future Starting Now!
Don’t be discouraged by minor financial mistakes, simply view them as learning opportunities. Once you learn from these mistakes, you will gain the necessary personal finance skills that will help you reach your financial goals. We invite you to speak to a Members Plus financial advisor or visit your local MPCU branch for tools and support to help you build a bright financial future.
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