[This is a guest post by Sarah Wardsmit. Think you’ve got what it takes to be a guest poster? Contact Em at em [at] blondeandbalanced [dot] com to learn more about becoming a guest poster yourself!]
When you’re preparing for the future, it’s easy to misinterpret how drastically your present financial decisions can affect you in the long-run. Digging yourself out of financial trouble causes more than just a monetary strain; it can hinder relationships, future opportunities, long-term interest, and the ability to establish yourself. As a 20-something, take note on how you can avoid making common financial mistakes:
1. Establish Credit
Many credit card companies believe in helping younger generations receive credit in order to build credit. It’s a vital component for any 20-something who intends on eventually buying a home or car; after all, you do need to have a credit history in order to receive approval on major purchases such as these. The issue here is that you could fall victim to the mentality that, since you have a credit card, you always have money!
View your credit card as a temporary loan, not as extra income. If you’re going to be responsible enough to have a credit card, be responsible enough to only spend money you have. Avoid charging the entire balance of a larger purchase to your card. Limit yourself to one or two cards to resist the temptation to spread payments across multiple companies.
2. Purchase Health Insurance
Don’t be lulled into a sense of false security, as emergencies do happen. Having a basic health insurance plan will aid in covering the cost of expensive treatments or emergency room visits without blowing your finances out of the water. It’s important to take precautions because not being prepared for the unpredictable could destroy your credit and leave you scrambling; you’re better off safe than sorry.
3. Plan Ahead for Major Events
Owning a house, buying a car, and planning a wedding are all major events that don’t come cheap. Ensure your finances are in order before setting out to spend a fortune on any life-changing plans. The average wedding costs upwards of $26,000, which is money spent on a singular day that could otherwise be spent on a mortgage down payment, travel, or a wise investment.
Before you splurge on that ostentatiously priced dress you’re eyeing in the boutique window, browse at affordable retailers. Companies like David’s Bridal offer top designers like Zac Posen and Vera Wang at reasonable prices. Therefore, carefully budget, compare prices, and embrace DIY projects from Pinterest before digging yourself deep into debt.
4. Discuss With Your Partner
Plan out important components with your partner to make sure your budgets match and your plans collaborate. Discuss how and when you will be ready to appropriately handle large purchases. If you’re planning on starting a family or otherwise joining your accounts, being honest about your past credit and debt is essential. Finding the courage to admit to any current collection issues is hard, but having the discussion years later will only be harder.
5. Have a Rainy Day Fund
Life is fickle. Everything might seem perfect today; however, a few months down the road, a job might fall through, a breakup might leave you paying rent by yourself, and one small accident may leave you neck-deep in car bills. Rainy day funds are a must. Though more is ideal, you should have an amount that will cover at least three months’ worth of living expenses.
Always remember that your financial decisions today are the precursor to future stability. Falling into the process of good repayment habits, saving milestones, and planning in your 20s will prevent you from experiencing common financial struggles now and later.
Sarah Wardsmit is currently a graduate student, recently engaged, and living in The Big Apple. As a gal who loves to save, she buys all her clothes from consignment shops and most of her apartment furniture is DIY. One of the only things Sarah doesn’t mind splurging on is a new addition for her Bob Dylan record collection!
Photo credit: Naiden Reed