Financial Tips for Young Adventurers
By: Lora Grant, CFP, FCSI
Most young adults heading off to post-secondary education or full-time employment find their adventure littered with financial hazards. Five simple tips can keep them on the safe path.
Learn how to ration
Being able to budget is a basic survival skill. Everyone needs to know how quickly their supplies are running out. One mother confidently sent her son to university, secure in the knowledge he had the best, most expensive, most extensive food plan available. She was shocked when, home for Christmas, he told her that not only had he blown through his food plan for the entire year but that he had also maxed out the credit card given to him for emergency use only. A clear idea of how big your resources are and how far they need to take you is the first step in budgeting. Step two is breaking that amount into smaller pieces - monthly, weekly, daily. The final step is asking yourself whether the money you are about to spend is on something truly important to you. A buck and a half for a coffee is no biggie but if you buy one daily, you're spending $547.50 yearly on it. A coffee maker at home and a travel mug would give you about $500 more a year to spend on things more important to you.
Beware of plastic!
Not just the quicksand risk of credit cards where you may be trapped by high interest rates and struggling to make minimum monthly payments, but debit cards too. Most of us find it easier to spend carelessly when punching in a PIN than when we're counting out bills from our dwindling supply of spending money. Seeing the money fly out of your wallet is more powerful than mentally calculating the new lower balance in your bank account.
Watch out for debt!
Borrowing money may be an unavoidable peril when starting out but make it for things you'll still find important in six months or a year, not for impulse purchases. Debt can be a heavy burden but it must be repaid. Your credit rating is your financial reputation and it is very fragile. I'm amazed at the young people I meet who have a "major" on their credit file because they ignored a debt. This black mark stays on your record for seven years. The original problem may be minor but the consequences aren't. One young woman left a couple of hundred dollars unpaid on a student loan five years ago because she moved and stopped getting the bills. She never borrowed money again until she was ready to buy a house with her new husband. They were stunned to discover that she couldn't be listed on the mortgage application if they were to have any chance of getting the loan. Despite a steady job and nice salary, her credit rating only showed that she had defaulted on her debt. Maybe the bill can't follow you but the debt stays on your trail for years. Once an unpaid debt goes to collection, future lenders are given a clear warning signal to avoid you. Protect your credit rating at all costs.
Don't stick your head in the sand
If you do get behind on payments, don't ignore them. Contact the people you owe and work out a payment schedule. I know one young woman in serious credit rating danger due to a cell phone bill totalling several hundred dollars. She can't pay it in full so she just ignores it. Financial problems don't go away, they get worse. Creditors are much easier to deal with if they know you intend to make good eventually.
Starting out, young adults need to avoid these financial pitfalls. Leaving home is a huge adventure. Don't learn the hard way; follow these simple tips and have a safe journey.
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