What's New at
AmeriChoice?

There’s a lot they don’t teach you in school. One item often missed is responsibly managing money in your 20s. This lack of financial education often leads to spending mistakes and bad purchasing decisions. Here are the 5 top spending mistakes we see young adults make so that you can avoid the same dangers.

1. Living above your means

One of the largest money mistakes you can make is to live above your means. If you’re spending more money than you’re making, you’re definitely living above your means. This is often due to a ‘keeping up with the Jones’ mentality. Once you’re an adult, it’s common to want to compare your lifestyle to those around you. You want to live in a beautiful apartment. You want to buy a brand, new car. You want to go on an expensive, all-inclusive vacation.

The reality is that your income, expenses, and budget are unique to you. You shouldn’t compare your living expenses to others. The best way to determine if you’re living within your means is to map out a monthly budget.

Here are some common areas young adults tend to overspend, and how to curb those unnecessary expenses.

• Housing
• Transportation
• Consumer goods

One tactic for cutting down on fixed costs is to make it a rule to not spend more than 50% of your income on these costs. If you’re bringing home $3,000/month, your monthly bills shouldn’t exceed $1,500/month. This rule may need to fluctuate based on the cost of living in your location, but it’s a good place to start. Lowering these fixed costs can be the easiest way to improve your financial situation. Lower rent by moving in with roommates. Buy a used car rather than a new car – or maybe just use public transportation. (First-time car buyers should follow these 5 steps.)

The worst purchase you could make is the purchase you made with money you don’t have. Living within your means will eliminate these types of purchases.

2. Not doing your research

Another bad purchase decision is the item you bought in a rush or without doing proper research beforehand. These are the purchases you look back on and cringe because you know the situation was avoidable.

One of the best examples of this is buying furniture online without reading the measurements. There are countless horror stories of people ordering pieces online, only to find out once they arrive they are actually designed for kids. Take that extra minute and look up the dimensions and sizing of everything you buy to make sure it will work for you.

Researching your purchases before you make them also allows you the time to rationalize the purchase and to find the best deal. If you have a nasty habit of spontaneous spending, practice the 24-hour rule. If you find something you want, wait 24 hours before you buy it. If it was a bad idea, the urge to buy will probably pass after 24 hours.

Check out more psychological savings hacks here.

3. Prioritizing design over function

Do you have to have the latest designer purse? Is the car you want not practical for your situation? Sometimes bad purchases come from prioritizing the wrong things. This often happens when shopping for consumer goods.

To curb this mistake, think about how much you’re spending on an item versus how much use you’re actually going to get out of it. If you only use one purse at a time for many years, spending extra money on a high-quality designer handbag may make sense. However, if you have a collection of handbags already – are you really going to use it enough to justify the price?

Instead of giving in to your wants, try one of these money saving challenges instead.

4. Not being honest with yourself

Sometimes the worst purchase decisions come from not being honest with yourself. You may tell yourself a lie in order to feel good about the purchase, or maybe you avoid the situation entirely due to discomfort. No matter the situation, ignoring the truth will lead to bad purchases.

For example, maybe you bought a monthly gym membership but aren’t using it. The bill is automatically deducted from your checking account each month. You may be trying to convince yourself that you will actually use it. Or maybe you just don’t feel like calling them to cancel. Whatever the white lie, that’s real money you’re losing out on. Most people spend between $21-$50 on their monthly membership. That’s $252-$600 a year you could be putting towards savings or paying down debt.

Another example of this mentality is taking college courses but not completing them. We all know how expensive higher education is. As a young adult, you may feel the pressure to enroll in college courses but aren’t truly invested in them. Don’t take a class you don’t intend to finish! If you take an incomplete, not only do you not get to count the credit towards graduation – but you still have to pay the full price of the course!

Source: Student Loan Hero

Be honest with yourself about your spending habits and decisions. Don’t let money go down the drain because you were keeping up a façade.

5. Buying for the sake of buying

It’s consumerism at its finest. You have the urge to buy an item even when you don’t need it. It could be because it feels good. Or maybe it’s just what you think you’re supposed to do as an adult. Whatever the reason, buying for the sake of buying is one of the worst money mistakes you can make.

Retailers know how to take advantage of this. You fill your online shopping cart with $20 worth of items you need. But wait! You only have to spend $25 more to get FREE shipping! Have you ever been guilty of buying something you don’t need just to take advantage of this promotion? You’re not alone. If shipping was $10, you spent $15 more than you needed to. Recognize this trick in the future so you don’t spend extra money.

This is also a common problem when you move into your first apartment or home. You’ll have the urge to furnish and fill your living space with everything you could possibly need. That gets expensive quick. Plus, if you spend money on items before you know that you’ll actually be using them – it’s a waste of money. One of the easiest spaces to go overboard is the kitchen. There are SO many kitchen utensils and gadgets out there. Start with a basic set and only add on when you realize you need something. If you don’t bake, you don’t need a muffin pan. If you’re cooking for one, you don’t need five pots. Take it slow, and you’ll spend less money in the long run.

We all make mistakes

The most important thing to remember about managing money in your 20s is that you’re going to make mistakes. Everyone does. In fact, leave a comment letting us know what your worst money mistake in your 20s was!

When you make a mistake, simply recognize it and learn from it so you don’t repeat it. Before you know it, you’ll be a financial expert – at least when it comes to your own money.

Auto Loans Made with Young Adults in Mind

One of the biggest money mistakes you can make is spending too much money on transportation. If you’re a young adult with little to no credit, this mistake is way too common. That’s why we created the Credit Boost Auto Loan for young adults. Get more information about this specialized auto loan here!