Managing money in your 20s and 30s is an overwhelming experience. Personal needs and expectations constantly change over the years, which can make building the right financial habits difficult. Whether entering the work force, buying a new home, or starting a family, there are four money mistakes that should be avoided.
1. Not negotiating your salary
Job offers out of school validate years of hard work. But don’t make the mistake of accepting initial offers at face value. It’s a mistake to accept any job offer without first negotiating overall compensation. Employers expect a little back and forth.
Companies spend significant resources to bring on new hires. When they extend an offer, they’d rather work to keep the right candidate than to start the search from scratch. Additional compensation can take on many forms, including a higher starting salary, employer benefits, or signing bonuses. You’ll never get what you don’t ask for.
2. Not keeping track of and budgeting your money
How much did you spend last month on your phone bill or your morning commute? Not knowing can result in paying unnecessary fees for unused services.
Tracking expenses can help to identify spending habits. Understanding the trends can lead to small changes that add up to big savings. Establishing a budget makes spending deliberate and can free up money better spent elsewhere.
Free apps like Mint make expense tracking and budgeting a breeze. They’re sure to solve the mystery of where all the money went at the end of the month.
3. Carrying a credit card balance
Referring to interest, Albert Einstein said, “He who understands it, earns it…he who doesn’t…pays it.” Credit card rewards and incentives are attractive and can be an effective tool. But improper use will result in serious consequences.
A small sum owed can quickly snowball into a large debt and a poor credit score. Bad credit affects the ability to take out a loan, like a mortgage for a home. Pay your credit card balance in full by the end of each billing cycle. If that’s an issue, stop using credit cards.
4. Missing out on compound interest
Upon his death in 1790, Benjamin Franklin bestowed US$4,500 to the City of Philadelphia. He left instructions specifying the funds remain untouched for 100 years. At 100 years, the city could withdraw US$500,000 but the remainder was to be left for another 100 years. In 1990, 200 years after Franklin’s death, Philadelphia was in possession of an endowment worth more than US$2 million.
It’s never too early—or too late—to start investing (in stocks, bonds, or GICs) for your retirement or your child’s education (in an RESP). Savings properly invested will earn compound interest and amount to a significant amount over several years.
The last word
The key to avoiding these money mistakes, no matter the stage in life, is to establish the right habits. It’s never too late to get started. Spend less than you make, make a budget and stick to it, watch out for unnecessary fees, pay off your credit card balance in full each month, and save a little for the future. While some habits may take more time to master than others may, a deliberate effort will lead to a financially brighter future.
- A Full House-Style Life Lesson (in Personal Finance)
- The Benefits of Automatic Savings Plans
- Credit Card Charges to Avoid
Flickr: KMR Photography