Mark Schaffer
With a few days left in my 30s, I’ve been thinking about the choices young adults in their 20s and 30s make that can either set them up for success in their 40s or potentially set them up for failure. Here are some potential mistakes I would talk about with people in this age group:
No. 1: Buy too much, it doesn’t matter
Whether it’s a car, a house, toys, or just a stretched budget in all categories, spending all or more than you earn because you “feel like” having a good salary can get you in trouble.
Before you make those big purchases in your 20s and 30s, take a moment to think about your long-term goals and write out a savings and investment budget to fund those goals. Doing this simple planning task will give you a better idea of what you can spend on both major purchases and day-to-day items.
No. 2: Underinsurance
You may feel like you’re too young or too healthy to worry about insurance, but these years can be a good time to make sure you’re covered in common areas of auto, tenants or landlords, health, disability and life. A single incident in any of these categories could create a lasting financial burden and you never know what the future holds. Insurance is not an area where you want to be underfunded.
#3: Not Protecting Your Credit Score
The impact that a bad credit rating can have on your mortgage, access to loans for personal or business reasons, and the overall cost of your debt can be significant. Inflicting damage to your credit score at a young age is something that could take a long time to repair, potentially during the years when it could be most important to your financial health.
Be careful when using credit cards. Always make payments on time and for the amounts required (ideally, in full), and try not to use more credit than necessary at any given time.
No. 4: Debt reduction in the wind
A study by Experian showed that those under 40 have up to $27,000 in non-mortgage debt, such as credit cards, car loans and student debt. Although some may have benefited from a reduction in student debt as a result of the ruling this year, there is still a lot of debt.
Young adults can pay off credit card debt with other credit cards, delay paying off student loans, or make minimum payments on low-interest debt. Although these strategies can help you get through it, you are only delaying the payment of a debt that you owe. These numbers can add up and work against you and your efforts to reach your future financial goals.
No. 5: Do not invest
Time favors the young, and one of the biggest mistakes young adults can make is not investing when they have years on their side. Investing early can give you the benefit of compounding, the ability to beat inflation by investing rather than saving, and the time to build a long-term portfolio that would have time to recover from periods of market downturns. .
This could also apply to other investments, such as real estate. Many young adults choose to rent rather than own and invest thousands of dollars in something that is not an asset. If home ownership is right for you, you can consider this as another opportunity to invest in the future.
And 1 other piece of advice: say “no” more quickly.
“The difference between successful people and really successful people is that really successful people say no to almost everything.” -Warren Buffett
The last one isn’t financial in nature, but it’s an important lesson I learned. Looking back, there are many instances where I wish I had said “no” more quickly.
In some cases, it could have helped me buy back my time and spend it on things that were more important to my life or career. In some cases, it could have helped me avoid opportunities that I knew weren’t good for me, but took to help someone or not to let someone down.
Sometimes you’re just not the right person for a particular job, and letting it pass opens up opportunities for you and opens up the possibility for the right person to take over.
By having a better understanding of your goals and priorities as a young adult, you can take control of shaping your future without getting distracted by the things you really should say “No to!”
Enjoy this time in your life and while having fun, be sure to set aside some time to set yourself up for success.
Marc C. Shaffer is a CERTIFIED FINANCIAL PLANNER professional and member of the Financial Planning Association of Greater Kansas City. Shaffer is the Chief Financial Officer of Searcy Financial Services, Inc., a registered, fee-based financial planning and investment advisory firm located in Overland Park.
#Start #world #Avoid #costly #financial #mistakes