Some people are born with a silver spoon in their mouth; others have to work hard for everything they earn. If you’re one of the latter groups—including most young adults today—consider this your wake-up call. You may be making mistakes costing you money or putting your future at risk. Here’s what to watch out for:
Living Paycheck to Paycheck
It’s easy to live paycheck to paycheck when you’re young. You may think that you have plenty of time to save for the future and that you can worry about that later. But later often never comes, and before you know it, you’re in your 30s or 40s and still living from one paycheck to the next. If this describes you, it’s time to start changing your ways.
One way to break the cycle is to start tracking your expenses. This will give you a better idea of where your money is going each month. Once you know where your money is going, you can start finding ways to cut back on unnecessary expenses. Another option is to start earning more money. There are several ways you can do this, from getting a second job to taking on freelance work. You may even want to consider going back to school for a degree that will help you get a higher-paying job.
Not Investing in Real Estate
Some people in their twenties may not be investing in real estate because they do not have the money available. Others may not be investing in real estate because they cannot afford to purchase a home right now and borrow money for a home loan. They may think that it is better to wait until they can buy a home without taking on debt before investing.
Others may believe that if they invest in real estate now, it will take too much time and effort to make the investment profitable. However, these individuals should consider that 30 years from now, even if they earn a modest two percent return on their investments, their home equity would be worth $388,000. This home equity can be tapped to pay for college, medical bills, and other financial goals.
The first step to investing in real estate is to take a look at your finances. Consider whether you can afford the down payment, monthly payments, and any closing costs associated with purchasing a property. If you can afford the down payment or monthly mortgage payments, you can now buy your first property.
Not Looking for a Credit Card Deal
Credit cards are often advertised as rewards or deals; however, they can sometimes be traps that cost you money. Many young adults do not pay attention when opening their statements and end up with interest rates as high as 24 percent. You want to make sure that you understand the terms and conditions of your credit card, and if necessary, lower your interest rate by calling your issuer and asking for a better deal. That way, you can avoid paying extra for your purchases.
Not Knowing How Much Student Loan Debt You Have
Many graduates get shocked when they receive their first student loan bill and realize that the amount is several times higher than what they had expected. If you do not know how much debt you have, it will be difficult to pay off your loans quickly. Many young adults rely on their parents to pay off student loan debt, but this can be a burdensome request if your parents are already struggling financially.
One way to lower the amount of interest you have to pay is by consolidating all of your loans when you get them down. You may also want to consider enrolling in an income-based repayment plan. This will lower your monthly payment and allow you to pay off your debts more quickly.
Not Saving for Retirement
Most people in their twenties do not think about saving for retirement because they still have time to plan for it. However, this is a mistake that could cost you in the long run. The earlier you start saving, the better because compounding interest can work to your financial benefit when you invest wisely.
Some savings you have may be put into a 401(k) or 403(b). If you are not familiar with these plans, this is a way that employers match your contributions to help you save for retirement. These plans typically have limited investment choices and high fees attached to them.
In addition to 401(k)s and 403(b)s, you can save for retirement by taking advantage of variable annuities. This investment vehicle allows you to invest in mutual funds or exchange-traded funds with tax benefits. Variable annuities are low-cost investments because the fees are usually between 0.5 percent and one percent.
The most important thing you can do for your financial future is to start saving now. You should be thinking about retirement and setting up a plan to help you fund it as early as possible in life, preferably before 30 years old. Think of how much money you’ll save by starting at 20 rather than waiting until 40—the difference could amount to hundreds of thousands.
If this seems too far away or overwhelming right now, take one step closer towards your goal each day with small changes like putting an extra $5 into savings or looking for ways to cut back on spending. As long as you’re taking care of yourself financially today, there’s no reason why tomorrow won’t take care of itself.