When we are young, we do all sorts of silly things.
At least I know I did!
We don’t think too far in advance, are susceptible to pressure from friends and like to push boundaries.
In most cases, this is all pretty harmless stuff, and it is something that most people grow out of.
Yet, the financial mistakes we make in this period can set us back for many years to come.
So let’s look at some of the common financial traps young people fall into, and how to avoid them if you are one (or one at heart).
1. They spend everything
That first adult pay cheque your receive is extremely exciting and I can understand if you’re tempted to go out and spend it all at once.
But my advice is to get into the habit of saving.
Even if you are earning much more than your weekly expenses, that is no excuse to splurge.
There will be times down the track when you are saving for a house or a holiday, or an unexpected medical or dental bill arrives and that the self-discipline of saving will come in very handy indeed.
2. They treat credit cards like they’re gift vouchers
Young people tend to live in the moment, which is often what gets them into trouble with credit card debt.
It takes no time whatsoever to rack up a few thousand dollars on a credit card, which an 18-year-old earning $45,000 a year will struggle to pay off.
Very few young people take note of the fine print either, and fail to realise how expensive credit card debt is with their eye-watering interest rates hovering around 18 per cent.
My advice is that unless you can responsibly pay off the credit card in full each month then you shouldn’t have one.
3. They fall back on the bank of Mum and Dad
Yep, this is one of the most common traps and the longer young people prolong cutting financial ties to their parents the harder it will be.
Put simply: if you are earning money then you should be able to look after yourself.
It may be tempting to run to mum and dad whenever you hit a spot of bother, or you simply want something you can’t afford, but my advice is to resist.
A debt that you have cleared yourself or a luxury item you have bought with your own money is so much more rewarding.
4. They don’t budget for expenses
Your financial situation may not be very complex at this stage of your life — there is unlikely to be any shares or complex investments — but that does not mean a budgeting system isn’t necessary.
Work out your living expenses each week, including utilities, and set aside a certain amount of money to cover these.
You could even set up a separate account within your bank and transfer a portion, maybe it’s 20 per cent, maybe it’s 30, to cover these costs every time you are paid.
This is fundamental.
The ability to budget for your expenses is one of the most important lessons you will learn.
5. They buy un-necessary furniture
Moving out of home is an exciting journey but your first property is highly unlikely to be the last place you will ever live.
In fact, as you move through your 20s, you will replace one flat or share house with another before you find enough stability in your life to invest in your own property.
Then, and only then, should you invest in that four-poster wooden bed or the expensive dining table.
It may feel very grown-up to buy such items but carting around heavy furniture from share house to share house is no picnic.
It is also a very fast way to blow thousands of dollars.
Furthermore, a lot of young people may make an interstate move for a job, which is not the time you should be wondering about what to do with that expensive Chesterfield.
Until you are truly settled, buy functional furniture only on a needs, rather than on a luxury, basis.
6. They incur silly fees and expenses
Let’s start with the ATM fees that all add up.
Rather than walking a few blocks to find your bank’s ATM, you settle for a competitor’s only to be slugged $2 per transaction.
Do this a few times and you could have bought yourself lunch with that money.
Or perhaps you have not investigated the best savings accounts and are actually getting slugged fees for having too little money in your account?
Young people will often fail to shop around for the best deal and this means they could be paying hundreds of dollars extra, sometimes even thousands, in utility bills and insurance costs when there are cheaper deals out there.
7. A word on your first car
It is never a great idea to purchase a vehicle using finance.
You end up paying steep monthly repayment costs that are interest on a depreciating item.
There is nothing wrong with taking out a loan to finance a home or apartment purchase as the interest on these items will be offset by capital growth, but cars start to lose their value as soon as you drive them out of the dealership.
My advice in this scenario?
Save up and put your money in a high interest account as you go.
It will be so much more satisfying to buy your first car with your own cash.
There you have it…7 financial tips I wish I knew when I was young.