Advice to my 21-year old self about money mistakes.
Now you are twenty-one and about to leave school. You’ve learned very little about money, saving, and investments. Dr. Muchado was right – save 10% of everything you earn.
Here are thirteen money mistakes you need to look out for. Sadly I made ten of them. Things turned out fine but had I made fewer of them I would have been much better off.
1. Paying too much for groceries
There is a reason Whole Foods nickname is Whole Paycheck. Buying organic and eating healthy is great, but you don’t have to wipe-out your wallet to do so. Check out less expensive chain grocery stores, buy on sale, and buy store brands.
2. Buying too much car
Most of us drive clunkers in college (I did). After starting our first job, the instinct is to get a new set of wheels (I did this too). Avoid overpaying, and overspending. Buy a good car that you can afford. You want to be able to eat and pay the insurance too. Read this great post about the best time to buy a new car.
3. Eating out too much
Cooking for yourself when you’re single just isn’t that fun. Eating out with co-workers at the end of the day? Fun. But all those happy hours will add up. Eating at home once in a while saves money. For those other times check out these 34 tips on how to save money on eating out.
4. Not saving for retirement
Yes, I get it. You’re not going to retire for 40 or more years. I felt the same way and didn’t start saving for retirement until I was 25 or 26. It’s so long away – I can just save later! The math works against you. The earlier you start saving, the more time your money has to grow. Start saving early, retire rich. Simple enough?
5. Not having a written spending plan
Living paycheck to paycheck is for the birds. Telling your money where to go instead of wondering where in the world it went is critical to financial freedom and building wealth. Create a written plan. Use a free tool like mint.com to easily track your spending and create a spending plan.
6. Having way too much credit card debt
Most students rack up huge amounts of credit card debt while they are in college. Being saddled with credit card debt when you’re just starting out is going to put a strain on your finances for a long time.
7. Paying too much for rent
I moved into one of the best apartment complexes available when I got out of college. Every other paycheck went towards rent (that’s bad!) As a general rule your rent should be 30 percent or less of your monthly income.
8. Paying bills late
It’s your first time with a checkbook! And rent payments. Electricity. Cable. Cell phone. Car insurance. Paying your bills as you get them will help you avoid late fees and build a good credit history. Better yet – sign up for auto pay for everything you can.
9. Not building an awesome credit score
Credit scores DO matter, even if you pay cash for everything (including a house). Lenders, employers, and insurance companies will use your credit score to evaluate you. To build a great credit score pay your bills on time and avoid credit card debt.
10. Using your emergency fund for pizza
Your emergency fund is for just that – emergencies. The transmission goes out on your car. A family emergency requires traveling. Midnight pizza because you have the munchies is not an emergency (even though it feels like it). You don’t have an emergency fund yet? Start one today.
11. Rushing off to graduate school
Do you need a graduate degree for your career path? If you go full-time or even part-time, it’s going to be a huge time and financial investment. First check how much more people are earning that have the graduate degree you are considering. Paying $70,000 for a degree that will give you a $2,000 salary increase won’t pay off.
12. Paying too much in taxes
If you’re getting a tax refund, you’re giving the government an interest-free loan. And that’s a bad thing that will help keep you from being rich. Learn how to adjust your withholdings so that your employer taking too much out.
13. Not seeking out expert advice
This is a case of you don’t know what you don’t know. Read books about money. Read blogs about money. Listen to radio shows about money. Find someone older and successful that will mentor you about money. Learn about money.
Bottom line: You can take control of your money like never before. By avoiding these mistakes, you’ll be building an awesome future.
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What money mistakes do you see your 20-something friends making now? Please leave a comment below.