How to Avoid the Financial Mistakes Many Young Adults Make
Being a young adult is awesome. You’re exploring the world in a different way, emerging from under the protective wings of your parents, starting to make money, trying new things, making mistakes - but learning lots from them… However, it’s also a time in many people’s lives where finances can spiral out of control.
Having money is great until you don’t have it! You don’t want to learn that mistake the hard way - debts can take years and years to pay off, extending well into your 30s if you’re not careful.
Here are some handy tips that will keep your finances happy, healthy, and under control, so you can get sail through your young adult years without getting into financial trouble. Read on to find out how to learn how to manage your money with ease.
Avoid credit cards
One of the biggest mistakes that you can make as a young adult is signing up for a credit card as soon as you’re getting a regular income. It’s tempting to always have that extra money on hand - and many people get caught racking up credit card debt without even thinking. Instead, it’s better to use the bank of mum and dad as a loan place should you ever need it, or at least for a little while. Better yet, save up if you want extra cash. A credit card can come a little later on down the track as they can be handy to have in an emergency.
Rent should be no more than a third of your wages
Many people, when they’re striking out on their own in the world, will see their first few rental homes as a place where they want to enjoy yourself, perhaps in a little too much luxury, or in an amazing suburb. A good rule of thumb is to never spend more than a third of your paycheck on rent if you can help it. If you spend half or more of your income on rent, which many people do, it will be harder to save money. Take the house or apartment that’s a little more inconvenient until something better comes along or your income increases. Having housemates is a great way to learn more about other people, too.
Big-ticket items should be an investment
Big-ticket items are those which cost hundreds or even thousands of pounds. This may be a holiday, a new sofa, a winter coat, or even a weekend out! No matter what these big-ticket items are to you, you need to think carefully about whether it’s an investment or not. Will the holiday lead to personal growth and/or an amazing chance to bond better with your friends? Will the sofa or coat be used for many years to come? Is this weekend out going to be any different from any other weekend? Often there are chances to save money here - going on vacation closer to home, buying second hand (for instance on Facebook Marketplace), or just drinking less on the weekend, or at a less fancy location.
Treat gambling with caution
Gambling can be a fun way to let off steam - so long as you know your limits. The trouble is, for many young people, you haven’t tested your limits as yet! While the best thing to do is to avoid gambling overall, you can approach it instead with caution. Only go to a casino for a night out every so often with friends and always only take whatever you can spend in cash - no cards. If you like to gamble, then there are plenty of ways to play without spending a thing online. This can be through fun play online games, where it’s simply for play money, or it can be done if you only play free spins slots at real online casinos.
Have a savings buffer
A savings buffer is there to help you in the event of an emergency or unforeseen event. Perhaps something goes wrong with your car and you need a part replaced, or your best friend decides they want to have a destination wedding. When you have a savings buffer of at least a couple of thousand pounds you will able to accommodate these type of events without having to do into debt to do so.
Keep a budget
Perhaps the most important tip is to keep a budget of your incoming and outgoing money. You can update your spend at the end of each day or week. Track where your outgoing money is going to by tagging each spend with a category - bills, food, socialising, big-ticket items, transport costs, savings, etc. By seeing a break down of where your money is going, it’s easier to really gain insight into your spending habits - to more accurately reflect your lifestyle and adjust accordingly. Apps like YNAB or Mint can help give you a better picture with graphing and analysis, or you can draw up a spreadsheet yourself.
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