Three Financial Mistakes for Young Adults to Avoid

There are some great financial strategies that make a sound financial life achievable. There are also some mistakes that can slow down or stop a young adult from getting started on a good financial path.
1. Avoid bad debt. It’s easy to live beyond your means. Credit cards can be a convenience, but in the age of debit cards, there isn’t much need for credit cards. If you use credit cards, pay them off completely each month. Doing this builds your credit history in a positive way, so when you’re ready to borrow money at a reasonable level for a good reason – your first home, a reliable car – it’ll be easier. Also, don’t stress about student loans unless they’re at astronomical levels. Student loans can help get a better earning foundation. They’re cheaper than credit cards and for many people right out of college or trade school, the interest is tax deductible.
2. Don’t try to live your parents’ lifestyle. That doesn’t mean to avoid the Baby Boomer memories of shag carpet and Woodstock. What it does mean is that it took your parents lots of work and time to build up to their current lifestyle. Take a close look at what your current income will allow you to spend. Let that drive everything from how much you pay in rent (maybe a roommate makes sense), what kind of car you have (a solid used car will work until you make more and can buy a new car), and your social life (got to have that – look for fun ways to enjoy friends without running up credit cards).
3. Don’t be without a safety net. If you think, “My parents will help me out if I get in a bind.” Before you let that be your safety net, think how you feel about paying all your parents bills when they retire. They need to be saving for their future and you do, too. So with your income driving your current lifestyle, you’ll stay out of debt. When you decide what you’ll spend, save at least 10% of what you make. For the first year or so, put it in a basic savings or money market account. Once you have the cushion build up, you can start diversifying.
Avoid going the wrong direction as you start out. It saves you the trouble of cleaning up your finances later.


Year End Tips – The Sequel

Cutting Spending During the Holidays

You’ve already bought gifts for everyone and now spending through the end of the year looks like the national debt.  What can you do to cut back spending until your first 2008 paycheck?

–  Eat from the pantry and the freezer.  Granted you might want to get a Holiday Ham (or Tofurkey if you’re a vegetarian), but most of us could eat from our stored food for months if we had to.  Look into the non-perishable items as well as the things in your freezer that you keep “just in case”.  Plan menus around that and only buy what you need to to finish those meals out.

–  Pay bills only when they’re due.  Many people pay a bill as soon as it comes in the mail.  Pay bills about a week before they’re due.  This gives time for the payment to arrive and avoid a late fee, but can often push it into the next pay check for you. 

–  Put off discretionary purchases.  If you can go an extra couple of weeks until the next hair cut, manicure, or poker night (unless you usually win), do it.

–  Eat at home instead of eating out.  That also means you can skip the $4 cups of coffee for a couple of weeks.

Naughty or Nice

In flipping channels the other night I saw an entertainment show report that they’d surveyed some children to find out who would top Santa’s list of Naughty Folks.  Britney Spears and Paris Hilton were at the top.  Everyone makes mistakes and a trusted mentor once said to me, “Feel free to learn from the mistakes of others.  Don’t feel you have to have to make them all yourself.”  So rather than harp on these already over-harped-on celebs, let’s look at a few lessons we can all learn from their over publicized errors.

         Know how much you spend and be sure it’s less than you make.  No matter how large your income, expenses will grow to exceed that amount if you don’t watch out.  So be sure that you save 10% of everything that comes in, keep some extra in reserve for taxes and emergencies, and cut back your lifestyle until you can live on the rest.

         Money can’t solve all problems – especially if a courtroom is involved.  Excellent legal representation is still going to be stuck with the facts of a case and the law that governs.  And sometimes that means that a judge or jury might nor rule the way you might want them to.  (That goes for legal issues other than driving infractions and child custody.)  

         The friends and attention that money can bring are sometimes very fickle.  Some of the people who support you when you’re on top are either not to be found or they’re the ones to throw the first stone when you’re down.  The solution to this is often being a little less public about having money.  Sad, but true.

In the spirit of the season, let’s all give a clean slate to all the folks who’ve had their mistakes and mishaps make big news in 2007 and wish them well in 2008.