Well, yet another day has passed and I didn’t calculate the area of a quadrilateral once. Geometry was mandatory in my high school (as it should be), but I’m still waiting for the day I’ll use that information. Personal finance however, is not a mandatory class and in most high schools it isn’t even offered. However, at least three times this week, that class would have definitely come in handy (had I taken it).
Students and young people struggle with responsible spending because a lot of us are immature, inexperienced, and don’t have the time to learn about it. So, we venture out into the real world equipped only with blind ambition and the necessary skills for calculating the area of a quadrilateral. Some make it; some don’t. Here are a few traps we might step into as young, wide-eyed millennials:
1. Failing to handle your debt responsibly:
As students and recent graduates, we are in debt up to our ears. A 2014 study on student debt reported, “in 2012, 71% of all students graduating from four-year colleges had student loan debt.” Additionally, “average debt levels for all graduating seniors with student loans rose to $29,400.”
Worse, though, is that we don’t really know what to do about this debt or how to handle it in the most responsible manner.
Another study, said students and graduates borrow blindly and we greatly underestimate how much we owe. A staggering 14% (who were currently in debt) reported having no debt at all.
For those of us who are in debt, the best way to go about it is by paying more than the minimum. The longer you are in debt, the more interest you accumulate and being tied to monthly payments doesn’t allow you to experience financial freedom in other areas of life.
2. Lacking a clear, well-defined budget:
Geometry still hasn’t come in handy, but arithmetic is about to. If Cindy-Lou makes $600 a week, her rent is $800 a month, and she spends $300 a month on gas and food, how much does she have left over for savings and assorted activities (like going to the club with Stacy)?
Budgeting is actually really easy. This nifty blogger even created a step-by-step guide with spreadsheets included for your benefit. Devote an hour to pulling out pay stubs and receipts, calculate how much you actually need to spend, and you’ll realize that you have a lot of money just going to waste. You’ll stop spending money unnecessarily on Venti Americanos and downgrade to standard black. When vacation time rolls around, future you will be really happy because you’ll be going to Bermuda instead of the Jersey Shore.
3. Living at or beyond your means:
Living on the edge is thrilling and liberating. Living on the financial edge is confining and stressful. It’s easy for young people making “real money” for the first time to inch too close to the line. When we do, we tie ourselves to pricey payments and potentially fall into the trap of debt. The farther away you are from your financial boundary, the less stressed you will be. If you live at or beyond your means, you will find yourself living paycheck to paycheck, which means you can’t be fun and spontaneous. When you live below your means, you have more savings and more disposable income, so you can spontaneously take a weekend trip if it comes up.
4. Overspending:
If you ever have the option of choosing between a Mercedes and a Ford, choose the Ford. Even if the Mercedes is possible, still go for the Ford. Do this because of a psychological phenomenon called hedonic adaptation.
Remember when you were a kid and you got a new toy and it was the “GREATEST THING EVER!!!11″ but then two months later you barely looked at it. This, my friend, is called hedonic adaptation and it happens when you adapt to a change. So, at first the Mercedes will be super awesome, but three months later, it’s just your car, your very expensive car. Where the Ford is also just your car, but it’s not as much of a financial burden, so you have all this extra money just lying around.
5. Missing the due date on paying a bill:
Missing a payment from a bill can come from purposely avoiding it to save money, or simply forgetting. But it creates issues if it goes unpaid for too long. Banks charge fees after a certain amount of time has passed, and if the bill is linked with your credit score (like a car payment is) it will lower your score. This means that when you try to get a house later in life, banks might be unwilling to give you a mortgage because of bad credit.
6. Underestimating the total cost of pricey investments:
When you move out on your own for the first time or buy your own car, you might not realize exactly what you are getting yourself into. No matter how much research you do, its hard to take into account the cost of maintenance and repair.
Likewise, if you rent, but utilities aren’t included in the lease, you might be surprised when a pricey gas bill shows up after an especially cold February. Accounting for all these extra expenditures and having a decent amount of disposable income to serve as a cushion will help you navigate the treacherous waters of adulthood.
7. Paying avoidable fees:
Parking tickets are my mortal enemy. They are also completely avoidable. Moving and parking violations can be easily avoided by planning ahead and having patience. Additionally, if you do get one of those devilish tickets, you could probably avoid the points on your license by going to traffic court. You’ll have to give up a week night, but the judge will usually remove any points simply because you showed up. Sometimes they’ll even reduce the fine, but in most cases they’ll increase it. The idea is that you pay more money now, but you save a lot by removing the points–yeah, I know, I hate the system too.
*BONUS* Walking into Forever 21:
Just stay away. Don’t even step foot in the store. They have these weird machines built into the walls that evaporate your paycheck and turn it into billowing sundresses and crop tops. I don’t know how it works. Probably, like teleportation or something…
[Featured Image Credit: 401K (2012)]
9 Mistakes You Might Be Making With Your Money is a post from: LifeDaily