When we are young and just learning how to manage your finances for the first time, mistakes tend to be made. It is important to recognise these budgeting mistakes and learn from them. Otherwise, you will continue to repeat these mistakes as you get older.
Keeping track of your personal finances can be tricky when you are dealing with things like student loan debt, rent payments, utility expenses. So, please take your budget seriously.
To stay on the right financial track, you need to understand the most common budgeting mistakes which young people make so that you do not make them too.
Below are the top 7 budgeting mistakes to avoid.
Credit Card Spending
Credit card companies love targeting young people who are just starting their careers. These companies know that young people have a lot of expenses and a limited income, which means they are more likely to use credit to pay their bills.
As a result, the credit card companies make money on interest payments. Do not get a credit card, especially if you are struggling to make an income.
The interest rates on a lot of these credit cards go up to 28%. You will end up paying more money for the purchases that you can afford. That is not a good way to keep a healthy budget.
Not Creating a Budget
Many young people do not actually take the time to sit down and make a list of their monthly income and expenses. Instead, they just carelessly make purchases without making sure they have enough money left over to cover their other expenses.
Most people do not even know how to create a budget. They think it is something that only wealthy people need to do.
However, a budget plan is a good idea for anyone to have. If you need assistance or guidance on how to make one, you can always talk with a certified financial planner. It would be to your financial advantage to do so.
Estimating Monthly Expenses
Young people have a habit of estimating their monthly expenses when they first create their budget. For instance, you might decide to spend $200 per month on food and groceries.
But did you actually add up the prices of all the food items that you normally buy to come up with the monthly amount?
If you are like most people, you probably came up with a random estimate of the amount in your mind. You must break this habit and come up with a more accurate figure.
Otherwise, you could end up overspending on one bill and not have enough money for another bill.
Not Factoring in Smaller Expenses
The typical budget consists of common expenses like rent, power, water, and groceries. But you need to factor in the smaller expenses too. Do you like to drink Gloria Jeans coffee every now and then?
Maybe you do a few runs at the drive-thru of your favourite fast food restaurant. These are all smaller expenses which must be accounted for on your budget. If you do not account for them, then you will have less money than you originally budgeted for.
Not Saving Money
When young people start making money for the first time in their lives, they are so eager to spend it on stuff they do not need. Try not to fall into this trap because you will regret it.
Save as much of your money as you can. In fact, make a budget category for “savings” and put aside some money for it every month.
Purchasing a Home
Purchasing a home some may see as a sign that you are successful. The only problem is the cost of housing and apartments is often to much for young people to handle. You may end up taking out a huge mortgage loan with a monthly premium that is barely affordable.
On top of that, you will be stuck in the same place for 15 or 30 years until the mortgage is paid, or you sell the property.
There is no guarantee you will make money on the property if you do sell it. And what if you lose your job and can no longer make the payments? Then you lose all the money you have paid into the home.
It is better to rent an apartment or house because there is less responsibility. You are not tied down to one location, and you do not need to worry about fixing anything or paying property taxes or homeowner’s insurance. You can just pay your rent, and that is all you need to budget for.
Opening a Joint Bank Account
It is common for young people to fall in love and open a joint bank account with their better half. Make sure you are both on the same page when it comes to what expenses you have and how you are going to spend your money.
Often this can be a tricky subject but it’s worth having the difficult conversations at the start so you are both able to budget and spend wisely.
Image Pxhere License CCO