Buying a house is the biggest purchase most people make in their lifetime, but many young adults are making costly mistakes when it comes to buying their first home. Here some common things you should avoid doing with your money so that you can get ahead of the game and save for something more substantial than rent later on without going into debt or sacrificing too much flexibility.
The “how to make money as a teenager without a job” is a question that many young people ask themselves. The answer to this question is by working hard, saving your money and not making any stupid money mistakes.
Making bad financial mistakes may be the last thing on your mind while you’re in your twenties. After all, you’ll never have a better physique, libido, or fantasies than you had when you were young and naive. However, the financial decisions you make before you are 30 may have a long-term impact on your life.
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1. Having to rely on student loans
It’s simple to take out as many student loans as you can. Paying down such debts, though, is a another story. Applying for more money than you need to purchase a vehicle, study in nicer furnishings, or live in an off-campus apartment is a terrible idea.
According to the Consumer Financial Protection Bureau, federal student loans might take anywhere from 10 to 25 years to repay, depending on the amount borrowed. So, the next time you want to spend money from your student loans on a better lifestyle, put it in savings instead.
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2. Not paying back student debts
According to the Federal Reserve Bank of New York, student loan debt in the United States was about $1.5 trillion in 2019, with roughly 11% of total student debt more than 90 days late or in default.
If you don’t figure out an affordable repayment plan if you’re behind on student loan payments or in default, your financial difficulties will only grow worse.
Late payments or loan default might have a negative influence on your credit score. Compound interest, which is interest on top of interest, may double or treble the initial loan amount.
The government may deduct up to 15% of your salary for repayment, and the IRS can freeze your tax returns until you clear your debt. If you’re still behind on your payments when you retire, the government may deduct up to 15% of your monthly social security income.
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3. Being unconcerned about your credit score
Making credit card, student loan, automobile, and other late payments for more than 90 days will lower your credit score, which creditors look at before giving credit. Your credit score is also scrutinized by landlords and employers. A decent credit score is 670-739, while an excellent credit score is 800 or higher.
Allowing your credit score to go below 580, on the other hand, may leave you with bad credit, putting you at the mercy of high-interest creditors willing to take advantage of your plight.
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4. Selecting unsuitable housemates
Your closest buddy may be great for a night out at the clubs, but will she be able to pay her rent on time? That man from school is a great basketball player, but can he keep a job? Choose a slacker roommate and use your credit score to pay for it afterwards.
That’s because if your roommate defaults on rent or moves out in the middle of your agreement, you’re still responsible for the monthly payment. If you have to pay late or break your lease, your payment history, which accounts for around 35% of your credit score, would suffer.
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5. Failing to save for a rainy day
When you put money aside in an emergency savings account, you’ll be able to handle auto repairs, medical bills, veterinary bills, house repairs, and other unforeseen expenditures that you would otherwise have to pay for using credit cards.
Save at least $1,000, ideally more, to avoid paying interest on debt accumulated for an emergency so you don’t extend credit card debt into the following decade.
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6. Using credit cards to finance your life
It’s a lot of fun to go out every night with friends for drinks and supper. Buying attractive furniture, going on regular trips, and having all of the newest electrical gear are all examples of this. Put everything on credit cards, however, and you’ll be able to pay for it later.
When you spend above your means by using credit cards to pay for everything, you may find yourself with debt and hefty interest rates far into your twenties. If you are behind on your monthly payments, your credit score may suffer, perhaps impacting your creditworthiness in the future.
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7. Ignoring the benefits of a retirement fund
It’s a good idea to start saving for retirement while you’re in your twenties, since you’ll have decades to develop your retirement account. You’re losing out on a lot of money if you don’t use your employer’s 401K plan, particularly if the firm doubles your contribution.
According to the US Department of Labor, if you put $5,500 into a retirement account each year and earn 7% yearly, you’ll have roughly $31,000 after five years. If you save at the same pace for 15 years, you’ll have $138,000. If you keep it up for 35 years, you’ll have roughly $760,000 in retirement savings.
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8. Failure to meet financial objectives
Do you want to travel the globe, purchase a home, have a family, get married, or just be financially stable later in life? Setting financial objectives in your twenties inspires you to make your aspirations a reality. Now is the time to start saving for a down payment on a home, to contribute to a retirement account, to develop an emergency fund, and to improve your work skill set in order to earn a better salary.
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This article originally appeared on Debt.com and was syndicated by MediaFeed.org.
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