Money Mistakes Young People Tend To Make

Here are some common mistakes young adults make with their finances

Ever felt like your money pulls a disappearing act every month — poof! — and suddenly payday feels like ancient history? Well, you’re not alone.

The fact remains that you can’t build wealth if you don’t know where your money is going.

Let’s talk about the small (but sneaky) mistakes that keep young people spinning their wheels — and how to fix them, one step at a time.

1. Draw Up A Budget And Stick To It

One of the golden rules of managing your money is to only spend the money that you have. Having a budget is one of the easiest ways to know where your money is going every month.

It is important to be realistic and honest with yourself when drawing up a budget. Be clear about what you need and what you want. If there is something you want, but you don’t really need, rather save for it and put money away every month. This will not only enable you to keep track of where your money is going, but it will also get you in the habit of saving.

If you’ve ever wondered, “Where did all my money go?”—this is your sign to start tracking where your money goes. You can use easily accesible spreadsheets or budgeting apps or you can just do it the old school way. You can start with these steps:

Write down every dollar/rand that comes in and what goes out.
Label every expense into whether it is a need or a want.
Your money has to work for you, so allocate it somewhere so it can work for you, before it disappears — even if that means allocating some of it into a savings account to maybe build up an emergency fund.

When you start tracking your money, you’ll start to see spending patterns. This way you can also spot money leaks — like the gym membership you never use or forgot to cancel or that sneaky food delivery fees.

2. Say No To Debt

It is easy to get lured into debt to keep up with the latest lifestyle trends. It is also one of the quickest ways to get into serious financial trouble.

There are times when you can’t avoid debt, such as when you buy a car or home. Try to keep personal debt to a minimum by refusing temptation to open that store account or credit card. If you already have a credit card, or multiple credit cards that you need to pay off each month, start by paying off the card with the highest interest rates first. Then work your way down, closing each account as you settle it.

Here is a simple plan to pay off your debt:

Make a list of all your accounts. Write down every balance and interest rate on all your accounts.
Pay off the most expensive debt first, even if it takes a few months.
Close the account once it’s paid. This way you won’t be tempted to spend money you don’t have.

Here’s what I wish someone told me at 24: Not all debt is bad – but ignoring bad debt is.

3. Start Saving Now

We are constantly being reminded that we are not saving enough. It’s true, because it is easy to get into the habit of spending more money that we have and using debt to fund our lifestyles.

There are lots of products out there giving you options in terms of the time you want to save for, how easy it is to access the money, or the specific saving goal you have in mind. The important thing is to start saving and get into the habit of saving as soon as possible.

You’ve probably heard financial people saying, “Start saving early.” Even if it’s just $100 a month, automate that saving. You’ll be surprised how quickly small amounts can grow, especially with compounding over time.

Want to make it easier to save?

Open a separate “Freedom Fund” (yes, give it a name).
Keep it out of easy reach — no instant transfers back to your day-to-day account.
Reward yourself when you hit certain milestones to keep you motivated.

4. You Are Never Too Young To Start Investing

Many young people think they don’t need to worry about retirement right now as they are only in their 20’s, and because it is so far in the future. People also greatly underestimate how much money they need to retire comfortably.

The advantage young people have is that they have time on their side. The earlier you start to save, the more time your money has to grow, because of compound interest. Compound interest is when you earn interest on interest, and over time it can turn a small saving into a substantial amount of money. As with saving, there are a number of options available that cater to specific investment needs, whether it is short or long term.

Start small. ETFs, unit trusts, or retirement accounts are great starting points. The investment landscape can be tricky to navigate on your own, but you don’t have to go it alone. A good financial adviser can guide you through the process.

So next time you get paid, don’t ask, “Where did it all go?”
Ask: “What do I want this money to do for me?”

Remember: You don’t have to be perfect with your finances. You just have to start. One decision at a time.

If this hit home, do one of the following before you forget:

Drop a comment with your biggest money mistake (let’s learn together!)
Or share it with a friend who needs a little money momentum today.