Most adults have no problem admitting their current financial situation is not what they expected, according to a report by Forbes. The root of the problem is usually linked to bad financial habits in early adulthood. Small mistakes like not paying attention to the money being spent or forgetting to carefully review the conditions of a loan can and will pile up, putting future plans and hopes in danger. Most of these long-term effects can be avoided, however, with just some minor changes in behavior.
Stopping to Monitor Expenses
People tend to have a more intuitive approach to monthly budgets. Appearances can be deceiving though, and spending can easily get out of control in different ways. For instance, the occasional superficial purchase may not put a household out of balance, but inadvertently starting to live an unaffordable lifestyle can, suggests a post by the New York Times. Sitting down to make a monthly budget that differentiates between necessary and frivolous expenses can ensure people don’t find themselves unexpectedly out of funds.
Forgetting to Map Out Financial Priorities
Our previous article on ‘Identify Your Family’s Financial Priorities’ discusses the four main financial priorities for the American family: income, savings, retirement, and debt. It’s nearly impossible to attend equally to each one of them. Instead, families should decide which one to make their priority. Those with an urgent need to increase their income can do so, for example, by taking on freelance jobs. People more worried about saving may, on the other hand, choose to set automatic monthly transfers to a savings account. In either case, identifying the most important financial priority and trying to balance it with the other three is the most reasonable strategy.
Using Credit Cards Too Frequently
Credit cards can be a life-saver. The problem is that most people forget they are supposed to be used as an extraordinary measure. A good rule of thumb is to never use a credit card just because of an expected increase in income. That would be like buying smaller sizes of clothing as soon as we start a diet. It’s also important to consider how well a specific debt can be handled. In a recent article, CNBC reminded readers that only being able to make the minimum credit card payments can prolong debt by a considerable amount. This can increase the chances of finding oneself unable to continue paying due to unforeseen circumstances, which will negatively affect credit score.
Not Being Proactive with Student Loans
Student loans are among the most common forms of debt. Still, not all student loans are the same and reading the fine print is essential. In some programs, for example, the debt can be forgiven after a certain number of payments have taken place. Under these conditions, a post on student loans by AskMoney recommends making regular payments even if the federal government has paused the need to make them. By contrast, if the debt will be forgiven after a specific amount of time, then it’s better to save the money for future emergencies.
Achieving certain life goals like getting a university degree, buying a house, or even having a comfortable retirement, depends on the ability to develop the right financial habits. This is particularly difficult during early adulthood, when the sudden increase in disposable income makes superfluous and spontaneous spending truly tempting. Nevertheless, making these small changes could greatly increase the chances of building a financially stable household and enjoying a more or less worry free adulthood.