By Marc C. Shaffer
With a few short days left in my 30s, I’ve been reflecting on the choices young adults make in their 20s and 30s that can either set them up for success in their mid-life decades or could potentially set them up for failure. Here are a few potential mistakes I would talk about with people in this age group.
Mistake #1 – Buying Too Much Whatever
Whether this is a car, house, toys, or just an engorged budget in all categories, spending all or more than you make because you “feel” like you have a good salary can get you in trouble. Before making these major purchases in your 20s and 30s, take a moment to consider your long-term goals and write out a saving and investing budget to fund those goals. By doing this simple planning task, you have a better picture of what you can spend on both your major purchases and your day-to-day items.
Mistake #2 – Under Insuring
You may feel like you’re too young or too healthy to worry much about insurance, but these years can be a good time to make sure you’re covered in the common areas of auto, renters or homeowners, health, disability, and life. A single incident in any of these categories could create a lasting financial burden and you never know what the future holds. While several factors will determine your insurance needs, you may have an advantage for lower rates and availability due to your age. Insurance is not an area where you want to be underfunded.
Mistake #3 – Not Protecting Your Credit Score
The impact a poor credit score can make on things like your mortgage, access to loans for personal or professional matters, and the overall cost of your debt can be significant. Inflicting damage to your credit score at a young age is something that could take a long time to repair, potentially during the years when it might be most important to your financial health. Be wise when using credit cards, always make payments on time and for the required amounts (ideally, in full), and try not to utilize more credit than needed at any given time.
Mistake #4 – Punting Debt Reduction
An Experian study showed that those under 40 have up to $27,000 in debt that is non-mortgage related, such as credit cards, auto loans and student debt. While some may have experienced student debt reduction from the ruling this year, there is still a lot of debt going around. Young adults may be paying off credit card debt with other credit cards, delaying the payment of student loans or making minimum payments on low-interest debt. While these strategies might help you get by, you’re just delaying the payment of debt that is your responsibility. These figures can add up and work against you and your efforts to complete future financial goals.
Mistake #5 – Not Investing
Time favors the young, and one of the biggest mistakes young adults could make is not investing while they have years on their side. Investing early can offer you the benefit of compounding, the opportunity to outpace inflation by investing rather than saving, and the time to build a long-term portfolio that would have time to recover from down market periods.
This could apply to other investments as well, such as real estate. Many young adults choose renting over owning and can pour thousands of dollars into something that is not an asset. If home ownership makes sense for your situation, you may consider this another opportunity to invest in the future.
And One Tip: Say No Faster
“The difference between successful people and really successful people is that really successful people say no to almost everything.” – Warren Buffet
The last one isn’t as financial in nature, but it’s an important lesson I learned. Looking back, there are many instances in which I wish I had said “No” faster. In some cases, this could have helped me redeem my time and spend it on things that were more important to my life or career. In some cases, this could have helped me steer clear of opportunities I knew weren’t right for me, but that I took in order to help someone out or to not let someone down. Sometimes you’re just not the right person for a particular job, and by letting it pass, it opens opportunities for you and opens an opportunity for the right person to take over. By having a greater understanding of your goals and priorities as a young adult, you can take control of shaping your future without getting sidetracked by the things to which you really should say, “No!”
Enjoy this time of your life and while having fun, make sure to carve out a little time to set your future self up for success.