Millennial

Common Financial Mistakes Young Adults Make

February 28, 2018 By Eric Tyson Leave a Comment

This passage on common financial mistakes young adults make is an excerpt from Personal Finance in Your 20s and 30s for Dummies, by Eric Tyson, the author of 18 different personal finance books.

Your 20s and 30s are decades where lack of financial knowledge is exposed and reflected in the beginning of costly money mistakes such as the following.

Spending Excessively and Accumulating More Debt

Too many young adults leave home being experts in spending without having learned much about living within their means and saving and investing. Many things may tempt you — the never-ending stream of gadgets and electronics, cars, restaurants, bars, nightclubs, new clothing, concerts, sporting events, and so on.

Defaulting on Student Loans or Other Debts

This problem is often the consequence of the preceding problem of spending too much and accumulating too much debt. Being overwhelmed with debt, which may be exacerbated by a job loss or unexpected expenses, can cause folks to fall behind on their student loan or other debt payments. Given the ridiculously high cost of college these days, the amount of student debt that some young graduates have accumulated is also ridiculously large.

Relationships That Damage Your Credit Rating and Financial Health

You know what they say about love being blind sometimes, right? Well, one of the things many 20- and 30-somethings don’t think about when in a relationship is how the things they’re doing are going to work out or not work out should the relationship fail. Sharing bank accounts and bill paying may not present glaring problems when everything is going well, but you can quickly end up with a tarnished credit report should your love boat run aground.

Falling Behind on Tax Payments and Violating Tax Laws

Filing your annual tax return and making quarterly tax payments if you’re self-employed aren’t enjoyable tasks. In fact, you may find these chores downright intimidating and stressful. But if you fail to complete them correctly, or complete them at all, you could get socked with hefty interest and penalty charges and possibly do some jail time in the worst cases.

Making Poor Investments

You work hard to earn money and then to save it. So you should do your homework to ensure that you invest it well. Don’t rush into making an investment you don’t understand, because you have a lot to lose. There are plenty of slick-talking salesmen who will sell you an investment that helps to line their pockets but not yours. You also don’t want your money sitting around for years on end in a low-interest bank account, which is what often happens to folks who don’t know how to invest.

Neglecting to Secure Proper Insurance Coverage

Most young people don’t spend a lot of time thinking about risks. After all, most young adults are healthy and energetic. So things like health insurance or disability insurance seem unnecessary and for older folks. The good news is that insurance costs less when you’re younger because you’re less likely to suffer a major illness or disability than someone decades older than you.

Being Taken and Duped by Biased or Shoddy Advice

Many companies and people have something to sell. Some of what they’re selling is good stuff, much is mediocre, and some is downright awful. You don’t need to pay high commissions or end up in the wrong type of investments or insurance.

Many thanks to Wiley for granting us permission to publish this excerpt. If you’re interested in reading an excerpt from another book of Eric Tyson’s, check out “Making Sense of Your Investing Options,” on our sibling blog Thousandaire.

Readers, how many of the mistakes pointed out here sound familiar?

What You Need to Know About Buying a House as a Young Adult

October 27, 2016 By Trisha Miller 2 Comments

Most millennials will purchase their first home by age 35. Actually, between the ages 25 and 35 homeownership rates more than double, which is astronomically higher than any other age group. If you’re like me and decide to purchase your home quite early, at the age of 25, homeownership might seem quite intimidating, and it is. However, it has been one of the most rewarding experiences of my entire life and it has come with its own set of challenges. If I could go back and prepare myself a little bit more for what was to come, here is what you need to know about buying a house as a young adult.

What You Need to Know About Buying a House

As soon as I stepped into my house I knew that it was the one I wanted to buy. It’s an older home, built in 1979, but had been newly renovated by the owner. The entire kitchen was redone, new carpet installed, new roof, new appliances, newly painted – you get the deal. I was so excited about the idea of owning my own home and the freedom that comes with it, that I didn’t stop to think about the little things.

Before You Buy

Before you even put an offer down on your dream home, you will need to know what you can afford and have an inspection. You will pay for this inspection in most cases and it’s usually non-refundable. You may be offered multiple inspection choices, but no matter what the inspector says, always choose the highest level of inspection possible. Especially if you are purchasing a home that is almost 40 years old like mine, you need to know that every single nook and cranny is up to par. This should have been a no-brainer for me, but of course it wasn’t. As a result, I was forced to pay for some costly repairs myself just a year into owning my home when the motor in my air conditioning unit completely died in 100 degree weather.

You may also want to take some time and get to know your homeowners association (if you have one) and your surrounding neighbors. While a nasty neighbor might not dissuade you from purchasing your dream home, a difficult HOA just might. I purposefully went with an older home outside of a subdivision or community just for this reason.

Don’t get me wrong, many HOAs are wonderful and uphold all the aspects of a friendly, clean, and desirable neighborhood. Yet, that might not be what every homeowner, especially a new one, is looking for. There will be a fee, usually yearly, associated with maintaining the HOA. In addition, you’ll need to make sure you have enough free time to keep your lawn and trees in pristine condition or have it in the budget to hire a gardener. They may also have rules and regulations about things like pools, RVs, and how long your garbage cans may stay on the corner. Read up on all of these things before you take the dive because if you neglect to inform yourself you could be slapped with a hefty fine that increases every day you are outside of regulation.

Closing on Your First Home

One of the reasons I was able to purchase my home so young is simply due to the fact that I live in a small town. Living in rural Idaho has its perks, including very low property costs in many developing areas. As such, I was able to finance my home by myself, without a partner or parent’s co-signature.

Another perk of rural living has to do with developmental areas. Of course, this won’t apply to all states, but where I live some cities do not require any money down. The state encourages growth in smaller cities surrounding major ones. So, they want these houses to be snatched up as quickly as possible. Thus, you may be able to take advantage of zero to very little money down.

Although, even if this is the case, I suggest putting money down on any home – even if it is just a couple thousand dollars. This will lower your monthly payment and make it easier on your wallet in the long run. If you’re wondering, “how the heck will I have the money for that?” just as I was, I would suggest starting to save money right now if you aren’t already. A great starting goal for a down payment would be 10% of each paycheck that you receive. If you can do more, that’s great! You’re well on your way to owning a home. If you find that 10% is too much for your budget, just do whatever you can, but know that it might be best to wait for a while before you take the plunge.

What’s more, you may be required to pay the costs of closing on your home. Usually this comes out to a few thousand dollars in various fees. You may need to plan on covering that cost that in addition to your down payment. It is common and customary for many sellers to cover the costs of selling their home, but this isn’t 100% assured. So, it’s always smart to plan on having to pay these fees. If you don’t have to, then you just have more money to save for a rainy day or on any improvements you want to make on the home.

Lastly, speak with your realtor about first time home owner grants. Again, this may differ depending on where you live, but my state was able to grant me 1,000 dollars down on the purchase of my first home. Needless to say, it’s just silly not to take free money.

Unexpected Costs When Purchasing a Home

You should know that some areas on your property will not be covered under your required home insurance. Should something go wrong, you’ll need to know who to call. Every home insurance policy is different. You’re going to be looking at a deductible and insurance cost inflation if you have to use your coverage, but in many cases it’s still going to be cheaper than having to pay the lump sum out of pocket. Just take a day or two to do some comparisons before you decide.

For example, recently a pipe burst in my front yard; my home is old and still has many copper pipes which are just not reliable anymore. The pipe that burst was near the main water valve, close to the street on my property. Naturally, my home runs on city water, so I gave them a call to see what the damage was. The city may fix issues like this for you, but in this instance, the burst pipe was lying a few feet under the ground, which is not in their jurisdiction. Ergo, I had to pay the money out of pocket. Some home insurance will cover problems like these, and some may not. This is the type of thing you don’t want to catch you off guard and why it is so important to have a constant cushion of savings when you decide to purchase your home.

A Home is a Long Term Investment

Now that I have fully scared you to death about the costs associated with owning a home, let’s talk about the benefits. Not only will a house often times be the same price or less as an apartment, (unless you live in a very densely populated city) you’ll be making payments on something that you own. This gives you the freedom to style and remodel your home however you see fit, as if you didn’t already know.

On your first home, it’s common to receive a tax break when you first buy it. You’ll now be filing the costs associated with your home every single year because you pay heaps of property tax on it each month. Therefore, you could possibly see a bonus on your taxes from here on out just because you own a home. I was able to file as a brand new homeowner within the first year of owning my home, but didn’t see as much return as some others do. This is most likely due to where I live, the length of time I owned by home before I filed my first homeowner taxes, and the low cost of my home overall.

You can also get tax breaks for any improvements you choose to make to your home. Not every improvement will apply, but especially things like energy efficiency upgrades can put a few dollars back into your pocket each year.

Finally, the longer that you own your home it’s feasible that your property value will increase. One of the biggest bonuses about choosing to purchase my home in a developing area near a larger city is the fact that my town is rapidly growing. As the demand for homes in my area grows, so does the value of my house. In the last two years alone I have seen my property value skyrocket 20,000 dollars higher than when I purchased it. This isn’t to say that this estimate won’t ever level off or even go back down, but in a healthy market you should see your property value increase little by little over time.

Just because you’re young doesn’t mean you can’t purchase a home. Buying my house was one of the single most liberating experiences I’ve had the pleasure of encountering. I’m still as in love with my home as much or more than the day I moved in. The longer you choose to remain in an engagement with you home, the more it will pay off for you in the end. Remember, the best defense is a good offense. Which means, if you want to buy your house young, start preparing now.

Photos: Nicci Romanovsky, Timothy Brown and Dan Moyle

Millennials are Saving at a Younger age than any Other Generation

November 12, 2015 By Amanda Blankenship 1 Comment

New research has shown that millennials are putting their first dollar towards retirement almost a decade before “boomers.” Boomers, who spurred the mutual fund industry, are no competition for the millennial generation when it comes to saving.

An average millennial household starts investing its funds at the age of 23. At the older end of the boomers generation, they started investing at the age of 37 and the younger end at 32. The average Generation X household started investing at the age of 26, so it seems that with each generation, people are thinking more about saving and their retirement than those before them. While this tells a story, there is more here than a simple generation gap.

There is some history as to why boomers may have waited so long to invest in mutual funds. Although mutual funds were started in the late 1920s, they did not gain popularity until the 1980s, when many boomers had already entered the work force. They felt pressure to save, but they weren’t thinking about their money growth in the long run. Many of them saw individual stocks as their only option.

In 1978, the Revenue Act was passed and had a section detailing the 401(k), that is what changed how people saw investing in mutual funds and saving. 401(k) savings and retirement planning became a gateway to mutual funds.

Now mutual funds assets sit at a pretty $16 trillion today, but prior to 401(k), the numbers were at $50 billion in the late 1970. There are nearly 8,000 mutual funds you can invest in today, compared with fewer than 500 in the 1970s. That is a huge change, and it could be why so many people are investing at younger and younger ages.

Millennials only make up 16 percent of the mutual funds market while boomers and Generation X make up 40 and 32 percent, respectively. However, the generation is still extremely young, and there is much to be said about the saving habits of the young generation. Many millennials are doing a rather impressive job when it comes to saving their money.

Eight in 10 of the millennial generation said that the recession taught them that they had to save, much like the generation that grew up during the Depression. Many of them are taking full advantage of 401(k) plans at an early age, and that gives them about a decade of additional growth compared to boomers who didn’t start saving towards retirement until they were in their 30s.

Another probable reason for millennials being able to save so easily is that everything is automated. Many millennials don’t even have to think about putting their money away, they simply set up an automatic with drawl or transfer to savings or a bond account.

While millennials have technology and an early start on their sides, boomers are aren’t doing so shabby themselves. Many of them have plenty of retirement money put away and, in fact, the generation even takes advantage of some of the technology available to them to automate savings.