Like many people, you may have blown through your young adult years making financial decisions that served you well in the moment, but may not have been particularly responsible. Dinner out several times a week, credit card bills you barely looked at and luxury cars way beyond your budget—life was practically a party!
But now, the party’s over. You’ve woken up in your 30s and realized that all that overspending is going to cost you big— and it’s going to cost for years to come. Luckily, there’s hope. It’s not too late to fix the financial mistakes we all make when we’re young and blissfully ignorant.
Here are the 5 worst financial mistakes adults make (and how to correct them):
Financial mistake #1 – Living without a budget
We’ve mentioned budgeting several times before, and that’s because it plays a crucial role in helping you manage your money responsibly. The good news about budgeting is that you can start practicing it early. The bad news is that it you may have to overcome your personal aversion to budgeting before you give it a try. That’s a fairly common problem, probably because many people think that a budget will only shackle their lifestyle. Unfortunately, according to a 2013 study, only 32% of American households had a working budget in place. Every successful business has a budget that lays out its short- and long-term plans. Every household needs to do the same thing.
Learning how to create a budget may seem daunting, but it can easily be done in 4 steps:
- Step 1: Estimate your monthly take-home income
- Step 2: Estimate your monthly expenses/Create a journal
- Step 3: Add up your income and expenses
- Step 4: Save, Save, Save!
Financial mistake #2 – Maintaining many credit cards and over spending
Now-a-days, young generation feel great to maintain more Credit cards and swipe them left-and-right. This is one of the Biggest financial mistake which leads to your financial journey in a bad condition. I know many people (especially Young software engineers) are using major portion of their earnings towards paying credit card dues and heavy interests.
How to overcome this mistake? You should keep only 1 or 2 Credit cards. Use them prudently and better pay cash payments that will reduce your unnecessary spending.
Financial mistake #3 – Not having an emergency fund
“Why would I need an emergency fund?” you might ask. And just like that, you’ve answered your own question. Nobody ever needs emergency funds … until they do. If every last spare cent you make is going toward entertainment or even paying off debt, it’s easy to be blindsided by an unexpected medical bill or auto repair visit.
Start taking a small amount—say $50—out of every paycheck and setting it aside. Save up until you’ve got at least a thousand dollars. If you can afford it, keep saving to the point where you’ve got three to six months’ of your total living expenses safely tucked away. You probably won’t need it … unless you do.
Financial mistake #4 – Neglecting your retirement fund
According to a 2020 Gallup update, the average working American is expected to retire around 66 years old. Ideally, every person should begin to save towards their retirement soon after college by the age of 25.
That being said, only 39% of adults currently saving for retirement began in their 20’s. In fact, 50% of adults from ages 18 – 34 are not saving for retirement at all.
People often choose to focus on their short-term financial goals rather than learning about 401(k)’s. There are various retirement plans to choose from, such as 401(k)’s, traditional IRA’s, Roth IRA’s, and more. Most retirement plans are tax-deferred or tax advantaged in some way.
Each of these plans also offer different benefits and have different requirements and rules. It is up to you to choose a retirement plan that best fits your needs. Make sure the plan also provides good financial benefits such as compound interest and savings matches. Once you have established a retirement plan that works for you, you need to manage it well and maximize the benefits. Consider automating your account contributions. You should also take advantage of your ‘employer match’ if offered.
Financial mistake #5 – Having a standard of living beyond what you can afford or really need.
We have to continuously evaluate what we really need to live the life we want. If we have a habit of accumulating more possessions, we have to ask ourselves why and what’s driving that. Sometimes people do things just to try and impress others or to be seen a certain way, which is not intelligent at all.
FOMO spending is real: Nearly 40% of millennials said they’ve spent money they didn’t have to keep up with their friends, according to a Credit Karma survey, and two-thirds said they feel buyer’s remorse after spending more than expected in a social situation they later regret.
If you’re unsure if you can afford something, check your budget. If you don’t have a budget, create one. You can manually track your finances and calculate how much “fun money” you can afford to spend every month. There are also plenty of apps that will track it all for you and provide a full picture of your spending.
No amount of FOMO is worth the anxiety of not knowing how to pay off your credit card balance.