7 Money Mistakes For Young Professionals To AvoidAugust 14, 2018
As a financially aware young adult, you know that not all millennials are working part-time and living in mom and dad’s basement. There are many young professionals today who work hard to bring home the bacon (or tofurkey). A bigger salary doesn’t mean that you’re automatically great at managing money. Adulting is hard, and the answers for how to manage money aren’t always clear. You’re probably going to make some mistakes, but that’s why we’re here to lend a hand!
We’ve already covered these 5 financial mistakes to avoid in your 20s. To help you up your adulting game, here are 7 more money mistakes young professionals commonly make. Also included are how you can avoid making them.
- Investing without a plan
- Spending over your means
- Ignoring your credit report and score
- Spending too much on housing
- Going into debt for the wrong reasons
- Avoiding money conversations with a significant other
- Letting fear stop you from checking out your options
Investing without a plan
Investing is easier than ever! Websites allow you to manage your investments with ease, and there are even some great apps that can help in the investing arena. You can invest just a few dollars at a time and watch your few dollars turn into a few dollars more. The problem a lot of young professionals make is investing without a plan. Some people focus only on stocks that have dividends while others try to pick the next big thing. Some people buy an app or pay for a subscription that sounds like it’s investing your money, yet the details are fuzzy. If you’re going to start investing, have a plan. Talk to someone who knows the industry and can walk you through what makes sense for your budget, age, and goals.
Spending over your means
What does it mean to live within your means? Well, in a nice little nutshell it means not spending more than you make. And in an even better nutshell, it means making good decisions for how much to spend on various aspects of your life, while also allocating money to go to your bills, savings, emergencies, retirement, and so on. It might not be a problem to occasionally splurge on brunch or craft whiskey, but if you are eating lunch out every day or spending more than 25% of your income on housing, you might be in trouble. When you spend over your means, you dip into savings or use credit to get you through to the next check or next month, and it’s a big ol’ recipe for disaster. It’s an easy trap to fall into as a young professional because you might start making more money and just assume you’re entitled to eat out or get a better place, but don’t make those upgrades without looking at all of your finances first.
Ignoring your credit report and score
No one has ever claimed that they super love getting their credit report and checking the document for errors or red flags, but ignoring your credit report and not knowing your credit score can really come back to bite you. With how comfortable many of us are sharing our household information—and with the increasing sophistication of hackers—identity theft is all too common.
Put a reminder on your calendar to check your report each quarter, which you can do for free through the main credit bureaus once per year. Just have a glass of wine and read through to make sure that there’s nothing anomalous on there. If there is, figure out the discrepancy and make sure your report is clean. As far as your credit score, this pesky little number comes in very handy when it’s time to get a loan or buy a house. Lots of places let you check or track your number, so there’s no reason not to know. If it’s no good, fix it now! You can do it with a little time, smarts, and persistence. Don’t wait until you’re trying to apply for a loan and then realize that you should have been on top of your credit all this time.
Spending too much on housing
With the outrageous rents in many of America’s top cities, and because the suburbs are a snoozefest, it’s tempting to increase your housing budget even if you can’t really afford it. Being house-poor (or apartment-poor!) is a big mistake. The reason most experts will tell you to only spend about 25% of your income on housing is because that’s a constant line on your budget. You can’t negotiate it down. You can’t skip a month. So if you have a major expense one month or your income changes or you just decide you need to save more, you’ll be up a creek with a big rent or mortgage payment. Know what you can reasonably afford and look into other options like roommates if you can’t get the place you want on your solo income.
Going into debt for the wrong reasons
It may seem like a great idea to borrow money for a trip or rack up some hefty bills for a wedding—#YOLO, right!?—but don’t go into debt for the wrong reasons. Considering the average American wedding is over $35,000, just keeping up with your peers might put you up to your eyeballs in debt, but you’re smarter than that. If you really want the trip of a lifetime, look for inspiration from blogs with the best tips on cheap dream destinations or how to find the best hostels or work while you travel. There are thousands of ways to save money on a wedding if you’re willing to compromise and use your network to put together a great community event. The problem is when you start thinking you deserve something and will get it no matter the cost. That cost might be starting off next year with more debt than you can afford, and no one deserves that.
Avoiding the conversation with a significant other
Thankfully, 73% of millennials in relationships talk about money with their significant other at least once per week. That still leaves a surprising number of couples who rarely talk about money, or don’t have a plan for how they want to manage finances or build credit. Couples, especially young professionals who have many earning years ahead, need to talk about their financial goals, budgets, and spending. In fact, couples who talk about these things rate their relationships as better and happier than their peers. Not sure where to start? We’ve got you covered with some tips on how to talk about finances with your significant other.
Letting fear stop you from checking out your options
Don’t put off financial changes because you’re afraid. Know what options are available to you, and use those trusted sources of information to learn how to improve your situation.