If you are a young adult, you are between the ages of 18-35 (celebratory hands in-the-air for me, I am still in the “young” category!!). This is the prime time in your life for major life changes, pretty much in every single area. The problem with the changes is they all came with the opportunity for you to make choices (good and bad) about what you want for your life. All of these major life decisions has left the door open for five super common (I have done 4 of these) financial mistakes.
When you are a young adult, you have the world at your fingertips. You get to decide what you want for your life, and this is true for every area of your life.
- Where do you want to live?
- What kind of car will you drive?
- Are you going to get more education?
- Do you want to get married?
- Have kids?
- Have pets?
You will make choices that will impact everything for your future. I always say, “nothing in life is permanent until you are in the grave.” (Super uplifting, I know). So, not all of these choices are permanent (even though some may feel permanent), but they will dictate which direction your life starts out moving toward.
If I am catching you post-mistake, don’t worry! You are young! You can change it (I’m changing mine as we speak!). If I am catching you pre-mistake, please listen and make better choices than I made. I’m not sure if I would have actually listened to someone about this stuff when I was 18, but if I had, I would be in a very different spot today than I am now.
I am absolutely sure there are more than just 5 mistakes you can make in your young-adult life, but these are the financial mistakes that can hold the most consequences for you. I am proof these mistakes won’t kill you, but I am also proof they can make your financial life more challenging.
Major Financial Mistakes You Are Probably Making as a Young Adult:
1. You bought a house you couldn’t afford.
The American dream. Having a home that is all yours. You can decorate how you want, create the kind of home you have always dreamed of and stop “wasting” money on rent. Here’s the thing, owning a home is an awesome thing when you can actually afford it and it won’t put stress on your financial life.
You should not be buying a home if:
- you have a crap load of debt,
- have the chance of moving soon due to job or lifestyle,
- have no idea how to manage your money,
- don’t make enough to support a house payment,
- you don’t want to be responsible for maintenance/repairs.
You will reach a point in your young adult life where it seems like the next logical step in what you need to do to build your life. All of your friends will start buying homes, you will suddenly see renting as a waste of money and inconvenience, you will start driving around dreaming about the home you will one day own.
Pro-tip: My husband was buying a house (for us; I was not on board) no matter what. I could not convince him otherwise. We bought our first home in a state we weren’t yet living in, at a price that put a strain on our budget. To move into our “dream” home, we had to live in a hotel for one month prior to closing. This hotel cost us $5,000. We had to borrow the $5,000 on top of our other $320,000 of debt to move into a home we couldn’t afford. Oh ya, and the home was a fixer-upper so we then had to cash flow renovations.
See how stupid that was? Don’t be us. We were dumb.
2. You bought a brand new car because you deserve it.
This may be one of the first things you do when you start getting a steady paycheck. Your old high school car your parents got for you is too much of a beater to have now that you are an adult. It doesn’t look nice, you are embarrassed to drive your friends and coworkers around and you have convinced yourself it is unreliable.
Freaking classic. Guess what? If you bought a new car, you have made a big mistake! Keep the beater that has no payments, no concerns if it gets dinged and is no longer losing value every year.
A new car will depreciate (go down in value) by 60% in the first five years of its life. That is a loss of over half of its value!! That’s insane! Taking on a car payment on something that is losing value faster than you can pay it off makes zero sense. Either keep the car you have or buy a much older vehicle.
Pro-tip: Instead of keeping his original high school car (paid for, reliable), my husband purchased a brand new Jeep that he then spent the next 7 years paying for. Even with a low monthly payment, we still had money taken from our income every single month for a vehicle that was losing value every day. Not worth it.
3. You got a dog/cat to go with your new adult life.
As a veterinarian, of course, I love pets and all the benefits they provide for your life. BUT, what I don’t love is new pet owners who come to see me and they can’t afford basic care. This drives me insane!!
A new pet is a 10-15 year commitment from you to your pet that you will provide them with love and care for the duration. If you don’t have your financial life in order, you do not need to bring another living thing into the equation.
Your new adult life does not require a pet, but oftentimes, we rent that first apartment, it’s just a bit too quiet and a dog or cat would really liven the place up! A new pet will add so many great things to your life, but one of the bad things is they are expensive! Make sure you know what you are signing up for before you add a pet to your life.
4. You are ignoring your debt.
This can be the worst mistake you could ever make. I know it’s freaking terrifying to face all of your debt, but you have to do it. No matter how much you think you may have, you have to actually find out the true amount you are in debt.
Ignoring your debt is just going to make it worse. You may know the roundabout, ballpark number you have in debt, but you need to know the exact number.
You need to know:
- what loans you have,
- how much they are,
- what provider they are through,
- what the interest rate is and
- what the repayment terms are.
I know that seems like a lot, but you need to know that stuff or you could end up defaulting on a loan and that can really mess things up.
If you have debt, but don’t know how much, just bite the bullet and look it all up today. Ignoring it won’t make it go away (trust me, I tried). Facing it head-on is going to be the fastest way to correct it.
Pro-tip: I ignored my debt for one year after veterinary school and it tacked on $20,000 of interest. I had no idea that would happen because I hadn’t looked at the terms or the interest rate of my loan. I was terrified to actually look at the total amount of debt I had. Turns out, it wasn’t as bad as I thought it would be. Did $320,000 of debt suck? Absolutely, but when I actually had all the loans written out and got a plan in place, it seemed much more manageable.
5. You are not on a budget.
If you are not on a written budget, you are going to suck with money. Only 1 in 5 people (with financial troubles) actually use a budget! That is so dumb!! Sorry, but that is totally true. You need to have a plan for your money, otherwise, you are just living with no intention of accomplishing anything. A budget will give you a plan. The budget is something you create based on what goals you are trying to reach. You tell all of your money what you want it to do for you. With a little follow-up, it actually does what you told it to do!
Some people make out budgeting to be this hard, complicated thing. I used to think that too. It seemed too daunting of a task to try to figure out how much I needed to spend on certain things every month. Who knows that kind of stuff anyway? How much gas do I use every month? How the heck should I know? I don’t know what I’m doing every month.
You can come up with a million reasons why budgeting will be too hard but as it turns out, a third-grader could do it. It is so simple. Use your income and decide where you want all of your money to go… boom! You are taking over the world!
Pro-tip: After finally committing to setting up my budget, I started with organizing all of my finances (all those finance papers I had been holding onto), then setting up my budget was a breeze!!
If you have made one or more of these mistakes, here’s how to fix them:
1. If you bought a house you can’t afford, sell it. Start renting instead. Do not keep something that is drowning you. If you can increase your income to keep it and make it work, then do that. Otherwise, ditch the mortgage and start renting.
2. If you bought a brand new car and now have insane payments you can’t afford, sell it (are you seeing a pattern here?). Get rid of the new car, buy a used one with cash and ditch the payments. If you are upside down on your car, sell it and take out a small loan to cover the difference you still owe. It will be worth it to not have payments on something that is decreasing in value faster than you can pay it off.
The other option would be to increase your income to pay the car off as fast as you can. If you aren’t able to pay it off in a reasonable amount of time, you should get rid of it.
3. If you have a pet you can’t afford, you either need to increase your income to afford it or find a different home for it. Yes, I know that completely sucks, but it also sucks for your pet if you can’t take care of it like you should. They didn’t sign up to live with a broke person. Make a good decision for your pet, even if it’s hard. That is what you do when you are an adult.
4. If you are ignoring your debt. STOP IT! This can really screw things up long-term if you have interest racking up or collectors calling you nonstop. Face your debts head-on. They aren’t going to just go away. You have to make them go away.
5. If you are not on a budget, get on a budget!! This will change your life, I promise! Budgeting is the path to successful financial management for your life. Don’t be like 80% of people in the world who aren’t living on budgets and are just treading water from month-to-month. Be that 20% who has their stuff together and is making big moves for their future. You are smart enough to do this.
If you haven’t made any of these mistakes, awesome!
Promise yourself you won’t make any of these mistakes because they could really cost you more than you bargained for.
If you have no idea how to set up a budget:
If you have no idea how to get out of debt:
If you have no idea how much money you are spending and if you are screwing up:
I have made 4 out of 5 of these mistakes (bring my husband into the picture and we are 5 for 5). You are not a failure or screwed for life if these things have happened to you. This is your wake-up call. Turn things around today. No more bad decisions, only movements in the right direction toward financial independence.
How do I know you can do this?
- You are reading which means you can probably do the third-grade math as well (natural assumption :-)).
- I have screwed up in every possible way and I was able to turn it all around. I am not special. I am just like you.
You can do this. I’m here to help.
What’s holding you back from facing your debts and starting a budget?
Could you use an extra $7,000/year?
Of course you could! It’s crazy the amount of money people can actually save.
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