The most common financial mistakes young adults makeHampton Wealth
It’s no secret that young adults are struggling financially. A recent study by Bankrate showed that more than half of all millennials don’t have enough savings to cover a $1000 emergency expense. And it’s not just millennials who are struggling; Gen Xers and baby boomers are facing similar financial challenges.
So why are so many people having trouble financially? There are many factors, but one of the biggest contributors is that young adults often make financial mistakes that can have long-term consequences. In this article, we’ll outline some of the most common financial mistakes young adults make and how they can avoid them in the future.
What are the most common financial mistakes young adults make?
The most common financial mistakes young adults make are:
- Not saving enough money
- Not budgeting properly
- Spending impulsively
- Taking on too much debt
- Not investing in their future
- Not understanding their finances
All of these financial mistakes can have long-term consequences if not addressed properly. Let’s take a closer look at each one.
1. Not saving enough money
One of the most common financial mistakes young adults make is not saving enough money. This can be a major problem because it means you’ll have less to fall back on in case of an emergency or unexpected expense. It can also make it difficult to reach your long-term financial goals, like buying a home or retiring comfortably.
2. Not budgeting properly
Another common mistake is not budgeting properly. This means you’re not tracking your income and expenses and don’t have a clear picture of where your money is going each month. This can lead to overspending and debt problems down the road.
3. Spending impulsively
A result of not having a proper budget is impulsive spending. When you are spending money aimlessly and without much consideration, the habit can quickly rack up quite a sum on your credit card bill. This can lead to a lot of financial stress down the road, especially if you’re not able to keep up with your payments.
4. Taking on too much debt
Another mistake young adults often make is taking on too much debt. This can be in the form of student loans, credit card debt, car loans, personal loans, or other types of loans. It’s important to keep your debt levels under control so you don’t end up drowning in payments each month.
5. Not investing in their future
A lot of young adults also do not prioritize investing in their future. This means you’re not putting money into savings or retirement accounts. It’s important to start investing early so you can reach your financial goals down the road. Even if you encounter an unexpected emergency somewhere along the way, you will still have sufficient time to regroup and achieve your goals.
6. Not understanding their finances
A final mistake that many young adults make is not understanding their finances. This means they don’t know how to read a bank statement, balance a checkbook, or understand their credit score. If you don’t understand your finances, it’s difficult to make sound financial decisions.
So how can young adults avoid these mistakes in the future?
There are a few things young adults can do to avoid these common financial mistakes:
1. Save more money
One of the best ways to avoid not having enough money is to save money regularly. This means setting aside a fixed amount of money each month or week to save. This can help you build up a cushion of savings that can come in handy in case of an emergency. A general rule of thumb is to have three to six months’ worth of expenses set aside.
If you’re not saving enough money, start by increasing your savings rate. Automatically transferring a fixed amount of money from your checking or current account to your savings account can help make this easier.
2. Create a budget
Another way to avoid financial mistakes is to create a budget. This means tracking your income and expenses each month and seeing where you can cut back on spending.
There are many apps nowadays that can help you track your spending on your phone. They do a good job of showing you your spending pattern and which areas you can potentially cut back on.
Avoid impulse purchases. This means not buying things on a whim. Instead, take some time to think about whether you really need something before you buy it. It can be tough to stick to a budget at first, but it’s worth it in the long run.
3. Pay off debt
If you have debt, one of the best things you can do is to work on paying it off as quickly as possible. Aim to clear off the most expensive debts first. This will help you avoid costly interest charges and keep your monthly payments under control.
Once the interest on your loans costs less than what you can afford to save, it’s time to start thinking about investing in your future.
4. Invest in your future
Planning and investing for your future is a great way to avoid financial mistakes. This means putting money into savings and investment accounts so you can reach your long-term financial goals.
Planning to buy a house or a fancy sports car?
Thinking about retiring in a beach house with a view of the ocean?
Start saving and investing now! It’s never too early to start investing. In fact, the sooner you start, the better off you’ll be. This is because you’ll have more time to ride out any market ups and downs, and still be able to reach your goals.
5. Educate yourself about finances
Last but not least, one of the best ways to avoid financial mistakes is to educate yourself about finances. This means learning how to read a bank statement, balance a checkbook and understand your credit score.
Take the time to learn about topics like budgeting, saving, investing, and credit. The more you know about these topics, the better equipped you’ll be to make sound financial decisions.
Making sound financial decisions is critical for anyone, but it’s especially important when you’re young and just starting out on your own. Unfortunately, many young adults make common financial mistakes that can have long-term consequences.
In this article, we’ve outlined some of the most common financial mistakes young adults make and how they can avoid them in the future. We hope this article has helped you become more aware of your finances and has given you some helpful tips on how to stay on track.
The most important takeaway from this is to always be proactive about your finances. If you’re not happy with your current financial situation, take steps to change it. Education is key when it comes to making sound financial decisions. The more you know about topics like budgeting, saving, and investing, the better equipped you’ll be to make smart choices with your money.
Lastly, don’t be afraid to seek help if you need it. There are many resources available to help you get on track financially. If you’re feeling lost or overwhelmed, reach out to our HWG advisors anytime. We’re more than happy to help you plan and secure your financial future.