Young People Don’t Make the Same Mistakes with Money as Your Parents Did!
Posted on | October 5, 2011 | No Comments
If you’re just starting out of college and looking to make the right financial decisions for a lifetime you will need to sit down and figure out a game plan. Saving money and investing wisely is something you constantly have to stay on top of. Unfortunately these days savings account rates are very low and almost nil along with CD rates which are also very low.
The best CD rates on certificates of deposit on 5 year CDs are some where around 2.00%. The highest savings account rates are even lower at less than 1.00%. I remember a few years ago you could get savings account rates at around 5.00% or even higher. Another depression factor is stock market returns in the 80s and 90s haven’t been there the past 10 years. In fact your parents have probably put off retirement because their 401k accounts are not “fat” enough.
The first step to staring a plan is to figure out where you stand with your savings and credit. Companies called credit bureaus prepare credit reports for use by lenders, employers, insurance companies, landlords and others who need to know someone’s financial reliability, based largely on each person’s track record paying bills and debts.In addition, each card you own — even the ones you don’t use — represents money that you could borrow up to the card’s spending limit.
But experts say it’s also important for young people to save money for their long-term goals, too, including perhaps buying a home, today’s mortgage rates are so low, or owning a business or saving for your retirement (even though it may be 40 or 50 years away).
Over time you could be charged a higher interest rate on your credit card or a loan that you really want and need.Our suggestion is to try any system — ranging from a computer-based budget program to hand-written notes — that will help you keep track of your spending each month and enable you to set and stick to limits you consider appropriate.Everybody makes mistakes with their money.
Learn to be a good money manager by following the basic strategies outlined in this special report.Here is our list of the top mistakes young people (and even many not-so-young people) make with their money, and what you can do to avoid these mistakes in the first place.Ask yourself if you really need the item.And, pay the entire balance on your credit card or as much as you can to avoid or minimize interest charges, which can add up significantly.
Spending money for something you really don’t need can be a big waste of your money.Often the simplest way is to arrange with your bank or employer to automatically transfer a certain amount each month to a savings account or to purchase a U.Even if you start with just $25 or $50 a month you’ll be significantly closer to your goal.
For information about your rights to obtain free copies of your credit report and have errors corrected, see the FTC’s fact sheet Your Access to Free Credit Reports online. Start by paying yourself first.The important thing is to start saving as early as you can — even saving for your retirement when that seems light-years away — so you can benefit from the effect of compound interest.
If you pay only the minimum amount due on your credit card, you may end up paying more in interest charges than what the item cost you to begin with. That means even before you pay your bills each month you should put money into savings for your future. Savings Bond or an investment, such as a mutual fund that buys stocks and bonds.
Also be aware that card companies aggressively market their products on college campuses, at concerts, ball games or other events often attended by young adults.But taking on too much debt can be a problem, and each year millions of adults of all ages find themselves struggling to pay their loans, credit cards and other bills.
Not saving for your future.Also recognize the warning signs of a serious debt problem.Example: If you pay only the minimum payment due on a $1,000 computer, let’s say it’s about $20 a month, your total cost at an Annual Percentage Rate of more than 18 percent can be close to $3,000, and it will take you nearly 19 years to pay it off.
These may include borrowing money to make payments on loans you already have, deliberately paying bills late, and putting off doctor visits or other important activities because you think you don’t have enough money.Not watching your expenses.
Credit bureaus, lenders and other companies also produce “credit scores” that attempt to summarize and evaluate a person’s credit record using a point system.Every time you have an urge to do a little “impulse buying” and you use your credit card but you don’t pay in full by the due date, you could be paying interest on that purchase for months or years to come.Two to four cards (including any from department stores, oil companies and other retailers) is the right number for most adults.
And one of the best ways to accomplish that is to learn from the mistakes of others.But if you charge a purchase with a credit card instead of paying by cash, check or debit card (which automatically deducts the money from your bank account), be smart about how you repay.Paying bills late or otherwise tarnishing your reputation.
So, pay your monthly bills on time.If you pay only the minimum payment due on a $1,000 computer, let’s say it’s about $20 a month, your total cost at an Annual Percentage Rate of more than 18 percent can be close to $3,000, and it will take you nearly 19 years to pay it off.
While one or two late payments on your loans or other regular commitments (such as rent or phone bills) over a long period may not seriously damage your credit record, making a habit of it will count against you.Also, periodically review your credit reports from the nation’s three major credit bureaus — Equifax, Experian and TransUnion — to make sure their information accurately reflects the accounts you have and your payment history, especially if you intend to apply for credit for something important in the near future.
The more credit cards you carry, the more inclined you may be to use them for costly impulse buying.Your credit record will also be damaged by a bankruptcy filing or a court order to pay money as a result of a lawsuit.The important thing is to keep them to a minimum.We know it can be tough to scrape together enough money to pay for a place to live, a car and other expenses each month.
Being able to borrow allows us to buy clothes or computers, take a vacation or purchase a home or a car.Getting too deeply in debt.But you can make the matter worse, a lot worse, by putting the purchase on a credit card and paying monthly interest charges.There are good reasons to pay for major purchases with a credit card, such as extra protections if you have problems with the items.
Research major purchases and comparison shop before you buy.If you apply for new credit you will be seen as someone who, in theory, could get much deeper in debt and you may only qualify for a smaller or costlier loan.For new purchases, instead of using your credit card, try paying with cash, a check or a debit card.You could be turned down for a job or an apartment.Compound interest refers to when an investment earns interest, and later that combined amount earns more interest, and on and on until a much larger sum of money is the result after many years.
For example, try to pay off your highest interest-rate loans (usually your credit cards) as soon as possible, even if you have higher balances on other loans.For example, take advantage of offers of “zero-percent interest” on credit card purchases for a certain number of months (but understand when and how interest charges could begin).
Buying items you don’t need.It could cost you extra when you apply for auto insurance.Even better, wait a day or two, or just a few hours, to think things over rather than making a quick and costly decision you may come to regret.Why not more cards?A budget doesn’t have to be complicated, intimidating or painful — just something that works for you in getting a handle on your spending. .If you believe you’re experiencing debt overload, take corrective measures.
It’s very easy to overspend in some areas and take away from other priorities, including your long-term savings.Having too many credit cards.Their offers may seem tempting and even harmless — perhaps a free T-shirt or Frisbee, or 10 percent off your first purchase if you just fill out an application for a new card — but you’ve got to consider the possible consequences we’ve just described.
Tags: Don't Make the Same Mistakes > with Money as Your Parents Did > Young People
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