Congratulations!
So you graduated college and are off into the real world! Congratulations! If you have half a brain, you went to a 4-year college or university for something useful or got a 2-year technical degree and are now employed 40 hours a week. Feels good doesn’t it? For the first time in your life you’re not counting change to buy a case of beer or mooching off your parents for gas money (or maybe you still are). Going from a dirt poor college student to a ‘young professional’ with an expendable income can feel like quite the accomplishment and it is. While it’s important to celebrate your newfound financial success, it’s also important to avoid pitfalls and mistakes that young people often make. Look at your 20s as the foundation for the rest of your financial life. The decisions you make now will impact you until the day you die so make sure to think before you act!
Buying a Brand New Car
For the love of God please don’t go and buy a brand new car when you get your first job after college. This has to be one of the biggest mistakes young people (or people in general) make. For starters, a brand new car depreciates faster than virtually any other asset you can own. Your new car you paid $30,000 for is going to be worth about $15,000 in about 3 years. Do you really make enough money where you can afford a hit of $15,000 in 3 years? Also, chances are you will get suckered into some horrible financing plan that the salesman sets up so you can ‘afford’ your fancy new whip. Guess what? The moment you drive off the lot you now owe more on the car that it’s actually worth. Nothing like driving a car that’s already underwater on the first day. Even though you think you deserve a new car, you don’t. Buying a brand new car for $30,000 or $40,000 when you don’t make much more than that in a year will lead to many moments of regret over the next half decade. Trust me. Do yourself a favor a get something used that’s 3 or 4 years old. You will thank me later.
Not Making a Budget
Making a budget is vital for anyone but it’s even more important for young people because if start making a budget when you’re young, chances are you will create positive money habits which will benefit you throughout your life. Think of a budget as your game plan for the month. A budget will tell you where your money is supposed to go and will give you peace of mind knowing all the bills are paid for and you have money for Friday night Pizza Hut. Once you make your budget, make sure to follow it throughout the month. Don’t just scribble out some numbers on a napkin and then lose it in the couch cushions. Your budget is your instructions for how to spend your money. If you were building a dresser from Ikea (I’m sorry I know it sucks), would you just read steps 1 and 2 and then guess the rest of the way? I sure hope not. Make it a habit to glance at your budget every few days to make sure you’re staying on track.
Not Having an Emergency Fund
I’m 26 years old. I’m in the Air Force and as healthy as a horse. Sometimes I think I am invincible. I am not. I get the feeling from many people my age that think nothing is going to slow their climb to being a CEO of a Fortune 500 company. Well, I have news for you. Life happens. The list of potential emergencies can go on forever. Medical emergencies, car problems and losing your job are three of the more common examples of emergencies that might slow down your rise to the top. Building up and maintaining a hefty emergency fund will give you peace of mind in the event that you run into a situation where a large chunk of cash is needed to alleviate a problem. Most experts and personal finance gurus recommend a fund that you could live off of for 3 to 6 months if you had to. That way you aren’t forced to take out a loan to pay a medical deductible or live off credit cards for 6 months when you lose your job. I have to say, ever since I built up my emergency fund (still working on it), I have worried a lot less about money knowing that I have a small cushion to fall back on in the event of an unforeseen emergency.
Not Saving for Retirement
“I’m only in my 20s so I don’t have to worry about retirement right now.” I’ve heard those actual words from people my age. Sounds pretty clueless, right?! Day after day I’m surprised at how many young people share this thought to some extent. I have a news flash for you, START SAVING FOR RETIREMENT NOW! Ever heard of compound interest? The longer your money sits in your retirement account the more money it’s going to make you! Start building a nest egg now while you’re young and childless. Even if it’s $100 a month it’s better than nothing! My advice would be to start a Roth IRA. You can contribute up to $5,500 per year and the best benefit is that your withdrawals are tax free once you hit retirement age. Not a bad deal! One last thing, DO NOT rely solely on Social Security or some pension plan to fund 100% of your retirement. Contrary to popular belief, pension plans are NOT guaranteed despite what your employer or union tells you. Google it if you don’t believe me. There are cases in the news right now where pension plans are becoming insolvent and are having to slash pension checks to those who rely on it for their retirement income. Making sure you have multiple income streams in retirement will mitigate this risk down the road. Save money!
If you aren’t guilty of the aforementioned mistakes then congrats! You are way ahead of the curve. For the rest of you, time to “Roll up your sleeves and get to work!” -Every politician ever
Seriously, don’t buy a brand new car.
Leave a Reply