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Anyone over 30 can attest that debt starts racking up too early in life. Being young is often viewed romantically as being financially free and not yet having tasted the burdens that life creates. Yet, nothing could be further from the truth. Many young people get their first credit card by the age of 18 and from there it keeps piling up. But, it doesn't have to. Here are 5 tips to gain financial stability while you're still young.
1. Student Loans
If you want to get ahead in your career, as you should, then you may need tuition assistance through student loans. There's nothing wrong with that. The problem comes later when you've graduated college and those loans become due. Graduates often find the payments are much higher than they expected. That's because that allowed the interest to pile up.
What can you do? You can make payments on your loans while you're still in school and literally save yourself thousands of dollars in interest. Some loans won't start accruing interest until you graduate, while others start accruing almost immediately. Even if you don't start accruing interest until you graduate, by lowering your balance you will still lower your interest along with your balance. Making any payments is a win.
Remember also that you don't have to accept the full amount offered. It can be tempting to accept the full amount so you can purchase things you want instead of need, but you will eventually pay for those things you don't need, and it's possible you won't even remember what they were.
2. Credit Cards
Credit card debt is a growing concern for young people. It can be tempting to make payments on that debt, and as long as you're making payments, the credit card companies will keep increasing your spending limits. The spending limit is the bait. Don't take it, or else you'll be making payments on that initial $3,000 in credit for the rest of your life.
A good habit is to only spend what you know you can pay back by the end of the month. That way, you avoid the astronomical interest. If you only pay the minimum payment due, which seems like a generous offer, your original $3,000 purchase blooms to well beyond $10,000 and takes over 30 years to pay. It's a pit that more people than will admit have fallen into. It will suck the joy right out of your financial stability.
Every month, pay off your credit card debt.
3. Automobiles
Never expect a lender or anyone working on behalf of a lender, such as a car salesman, to have your best interest in mind. If a car salesman can get you approved for a brand new BMW, but you're only working an entry-level job, they'll try their best to get you into that brand new BMW.
If you're wondering how that could even happen, here's a scenario. A young person still lives at home with their parents and they're making minimum wage. Because they live with their parents, they have no debt, so everything they earn looks good enough to the lender to go toward that brand new car.
The problem is that young person plans on moving out in a year. What they don't realize is when they drive off the lot in their brand new BMW they're never moving out, because now they can't afford the rent to get into their own place.
The solution is to purchase what you can afford over the lifetime of the loan of your automobile, even if that means buying a used eco-friendly hatchback. It may not be the coolest car you could have purchased, but it's certainly the smartest.
Final Thoughts
Life offers plenty of tests for young people. When it's your time to take the test, make the smart decision. When you make the smart decision, you will enjoy financial stability throughout your adult life.
Related: Investing for Your Young Children: How to Balance Proactive Saving & Financial Education