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Irish literary critic, playwright, and essayist George Bernard Shaw said, “Youth is wasted on the young.” While Shaw may not have had money management on his mind, it’s true that many young people take their financial health for granted. Here are a few common pitfalls to avoid.
1. Abusing credit and damaging your credit history
More and more, your credit history will be used to judge you and your creditworthiness by everyone from potential employers and landlords to banks and insurance companies. So when pre-approved offers for credit cards begin pouring in, many young people act as though they’ve hit the lottery—buying everything in sight without regard for how they’ll pay for it. When they can’t pay for it, the resulting dings to their credit histories can for years deny them of jobs, apartments, or credit such as car loans and mortgages. Right from the start, it’s important to think of your credit history as an important asset—one that needs to be built and maintained the right way.
2. Spending every penny you earn
That first paycheck—and those that come after it —can be so enticing. After all, it’s likely the first time you’ve had what seems like a small windfall, and it’s burning a hole in your pocket. Before you know it, you’re spending every penny you’ve earned week after week. While there’s nothing wrong with treating yourself occasionally with your hard-earned wages, from the very first paycheck it’s important to set up a budget that includes spending some and, more importantly, saving some. Putting money aside for major purchases down the road—or just for a rainy day—is a good habit that lasts a lifetime.
3. Not managing your money
Believe it or not, many young adults get their first checking account and have no idea how to balance it—often resulting in hefty overdraft charges and leaving them wide open to fraud. Right from the beginning, it’s important to keep close track of all your expenditures —from checks written to ATM withdrawals to debit card purchases —and check all receipts against your monthly statements in a timely manner. Not only will you be able to spot errors and fraudulent charges right away —giving you the best recourse for getting them fixed—you’ll also be on top of how much you’re spending and on what.
4. Not saving for retirement
Planning for the day you retire probably seems ludicrous if you’re in your late teens or early 20s and have just begun your working career. After all, there’s the better part of four decades ahead of you to begin worrying about retirement, right? Actually, saving for retirement early can be one of the smartest things you can do. Thanks to a nifty concept called “compounding”—where you earn interest on your interest—saving even a little bit each week in your 20s will grow a larger nest-egg than someone who begins saving twice as much but waits until they’re in their 40s. Why not put aside a few dollars each week in your employer’s 401(k) or an IRA and reap the rewards down the road?