Financial troubles don’t usually start with something dramatic, such as the loss of a job or other sudden financial difficulty. Most times, they develop over a number of years. Many times, they start early in life, when you’re young and just starting out in making spending decisions that can affect your life for years to come.
Some spending decisions, once made, are difficult or impossible to reverse. And though the spending decisions themselves don’t necessarily cause the problem, they do form a foundation on which other spending choices are piled up until the day of reckoning arrives.
Here are three of the biggest spending decisions you can make as a young person that can negatively affect your finances early in life.
Racking up high student loan debt
You want a university education, and you want the best one that you can afford. But that’s the problem – you really can’t afford the education that you want. That’s the whole reason why young people load up on student loan debt in the first place. Student loans make your education affordable, at least while you are in the process of acquiring your degree.
The problems come later.
Complicating the student loan dilemma is that a university education is just so darn expensive. Once you’re in school and start borrowing, the debt just piles up. After four or more years of relying primarily on debt to pay for your education and even some of your living expenses, you can have tens of thousands of dollars in debt. And you can rack up plenty of it before you even earn your first dollar in your chosen career.
Student loan debt is unlike other debt in two very important ways:
- It’s long-term in nature
- It’s unsecured
Unlike a car loan that will be paid off in 3 to 5 years, student loans can stay with you for well over a decade. There are a lot of things you will want to do once you graduate, but your student loan debt be right there alongside of you, generally interfering (at least a little bit) in your plans for years. And unlike a car or a mortgage, because student loans are unsecured, there is no asset to sell to payoff the loan if you decide that you’ve had enough of it.
Take student loans if you have to, but just be well aware of the fact that you will one day have to repay them. With that realization planted firmly in your mind, do the very best you can to keep those debts to a minimum. The smaller they are, the better the start you’ll get in life after graduation. Also – Don’t forget that getting student loans makes you eligible for more scholarships and bursaries.
Buying a brand new car early in life
It’s one thing if you have a brand-new car given to you as a gift by your parents or by someone else. But if buying a brand-new car means committing your own money – and/or taking on large monthly payments – it could turn out to be a serious financial mistake.
Related: Why I bought a new car
With even a relatively inexpensive car going for $20,000 brand-new, this purchase is a major financial move at a time when you probably will be struggling to afford it. It is of course worse if you do it while you’re still in school, but it can be a problem even after you graduate and enter the workforce. You’ll either be out something approaching $20,000 on the purchase, or you’ll be on the hook for several years with monthly payments of anywhere between $300-$500 per month.
Even if your first job out of school pays $50,000 per year, the monthly payments will be a significant expense. This will be even more true when you add the cost of gasoline, insurance, and repairs and maintenance.
As attractive an idea as a new car is when you’re young, you will save a considerable amount in monthly expenses by buying an older car that you can get without taking on a loan.
Having an opulent wedding
Everyone wants to have a nice wedding celebration, and there’s no problem with that. The issue is the cost of making it happen. Like so many other events in life, weddings have gotten super expensive. You can easily spend anywhere from $20,000-$50,000 and more on a typical wedding celebration.
If your parents are paying for the celebration, it may not seem nearly as bad. But before you run off taking mom and dad’s money and spending it on an opulent wedding celebration, consider the following:
- Even though mom and dad are paying for much of the cost, are you also paying for major expenses that they won’t or can’t cover?
- Assuming mom and dad are paying for everything, might you be better off scaling down the celebration, and taking some of what they’re willing to pay as a cash gift?
With the first point, what you’re really looking at is human nature. “Our wedding will only happen once in our lifetimes, let’s…” It’s easier to get carried away with the emotion of the moment than you know. And even though parents are paying for most of the bill, you could add many thousands of dollars to the cost of the event with add-ons.
On the second point, accepting cash with a less extravagant celebration, this can be a one-time opportunity to payoff or at least greatly reduce, student loans and other debt that you have acquired early in life. In a way, you’re facing a choice of either creating “the perfect day” – or making for a better life after that day.
If you’re young, you have a lot to buy in life and you will doubtlessly incur a certain amount of debt along the way. But you can make decisions that will lower the amount of money that you owe, and that will make your life – or least your finances – go whole lot better.
(Image courtesy of marin / freedigitalphotos.net)