Biggest Money Mistakes You Can Make When You’re Young :: Wamhoff Financial & Accounting

Biggest Money Mistakes You Can Make When You’re Young

With youth comes a feeling of invincibility, and a feeling that you have plenty of time to be reckless now and make up for it later. But when it comes to finances, that couldn’t be further from the truth. Matt Allgeyer, Financial Planner at Wamhoff Financial Planning and Accounting Services, explains the biggest money mistakes young people make, and how to avoid them.

  1. Taking longer to pay off student loans
    • Many feel that with low interest rates, it’s OK to take longer to pay off student loans.
    • However, federal and student loans cannot be consolidated.
    • Instead of taking longer, add a bit more to each payment as you’ll put more money towards principle and save on future interest.
  2. Ignoring the importance of your credit score
    • It’s a mistake to think that if you’re not trying to buy a home soon, that your credit score isn’t important.
    • Your credit score in your 20’s is very important. Even though credit companies expect that you’ll make some mistakes while you’re young and learning, you will pay for them well into your 30’s.
    • Don’t open several credit card accounts just to build your credit.
    • Keep the number of credit cards you have manageable, and pay them off in full each month. Payment history makes up 35% of your FICO score, which is what lenders see.
  3. Not saving for retirement while you’re young
    • Too many people think they should wait until they’re making more money to start saving.
    • When you’re young, you have time on your side, which means your savings will compound over time.
    • While you’re young and paying a lower rate of tax, open a Roth IRA first and don’t deduct your contributions until you are making more money and can begin a Traditional IRA or 401k.
  4. Tapping into your retirement savings or refinancing your home to pay off debt
    • You will pay a 10% penalty for taking money out of your retirement before age 59-1/2.
    • Debt is the problem, not paying it off. Stop spending on credit cards, pay them off, and focus on not building them up again.
    • Many people take home equity loans or refinance to pay off credit card or other debt. When you do this, you’re putting that debt on your home. This can put you upside down on your mortgage!
    • Learn how to budget, not get a bailout.
  5. Not putting a down payment on a car, or financing for too long
    • Do not finance a car for more than four years. It will end up costing you more in interest and depreciation.
    • Aim to put down 20% cash and keep your monthly payment under 10% of your monthly take-home pay.