Young adults are just learning how to make sound financial decisions, so mistakes are bound to happen. The impact of being financially reckless early on could take several years to be undone.
It’s nothing to be ashamed of. Most of us also made the same mistakes. It is literally like the rite of passage to adulthood. You will certainly learn from them, gain more experience on how to manage your money more prudently and ultimately become more financially savvy.
That said, it does not hurt if you can learn to recognize the common money mistakes you make as a young adult, and perhaps, make a conscious effort to do better.
In this piece, we have rounded up some of the most common budgeting mistakes that young adults often make.
Random monthly budgets
When starting to budget for the first time, you probably may not know the exact amount to assign to items in your budget. It is not uncommon at this point for you to assign a random number to each category.
The best way is to average your spending for the last three months. Use the results as the baseline for each category. This way, you are not under-budgeting.
Then, as you get better data, you can begin to cut back on the amount budgeted for each item.
Not tracking your spending
The success of your budget depends on having explicit knowledge of what you spend your money on. Sure, tracking every cent you spend might seem pretty tedious, but it is the only way to know if you are still within your spending limits for each category.
Suppose you need a car loan to get a new ride, tracking your spending will help you identify areas you can cut back on so you can have an extra something to put towards repaying the loan each month.
Thankfully, there are a lot of budgeting apps you can use to track your spending conveniently.
No emergency funds
“What can go wrong? I’m young, strong and healthy.” This is probably the most common way of thinking that stops you from stacking a nice nest egg in case of emergencies.
You see, the emergency fund is supposed to act as a buffer for your savings and investment funds, so you do not have to dip into these monies when an unexpected event like an accident happens.
Putting off saving for retirement
Sure, you are young, have your life ahead of you, and you are just at the threshold of your career. In essence, you have enough time to plan and save for retirement.
But, here is the thing: As most young adults tend to forget, old age creeps up on you. Time goes by and, suddenly, you realize you are almost 40 with no retirement plan in place.
Not working as a team
For married young adults, one of the budgeting issues is not working together as partners. It is essential if you want your budget to work to get your spouse’s agreement and commitment.
You do not want a situation where one person is spending too much money and blowing through the budget even before the months get started. Be sure to regularly discuss financial goals with your partner and how you can achieve them together.
No fun money
While you may want to exercise self-control and not splurge on entertainments and other fun things – you still want to set aside some money each month to have a good time.
When you restrict yourself from having fun and other feel-good activities, you are likely going to end up splurging or worse blowing your budget for the month. By setting aside some fun money and sticking to it, you get to enjoy yourself while maintaining healthy finances.