Young and not so free…

When we are young, we do all sorts of silly things. We don’t think too far in advance, are susceptible to pressure from friends and like to push boundaries.

In most cases, this is all pretty harmless stuff, and it’s something that most people grow out of.

Let’s take a look at some common traps young people fall into, and how to avoid them if you are one (or one at heart).

1. They spend every last dollar!

That first adult pay cheque is extremely exciting and I can understand if young people are tempted to go out and spend it all at once.

However, many young adults get into the habit of spending money because it temporarily helps them to feel good.

This is what’s known as “retail therapy.”

You know the phrase: “When the going gets tough, the tough go shopping”?

But while this may provide you with some short term comfort, mixing money and feelings can be dangerous.

Avoid going shopping if you’re having a bad day – the temporary high from emotional spending will pass quickly, but actually saving will leave you happier and more fulfilled in the long-term.

Even if you are earning much more than your weekly expenses, that’s no excuse to splurge.

There will be times down the track when you are saving for a house or a holiday, or an unexpected medical or dental bill arrives, that the self-discipline of saving will come in very handy indeed.

2. They use credit cards like they’re free money

Young people tend to live in the moment, which is often what gets them into trouble with credit card debt. 

It takes no time whatsoever to rack up a few thousand dollars on a credit card, which a 20-year-old earning $45,000 a year will struggle to pay off.

If instead you choose to make the minimum monthly payment, you may be paying off your cards for many years to come and at a very high interest rate.

Very few young people take note of the fine print and fail to realise how expensive credit card debt is with their eye-watering interest rates hovering around 18 per cent.

3. They fall back on mum and dad for help

Many young adults don’t have any savings set aside for emergencies or a rainy day.

So while it’s tempting to run to mum and dad whenever you hit a spot of bother, or you simply want something you can’t afford, but my advice is to resist.

Put simply: if you are earning money then you should be able to look after yourself.

A debt that you have cleared yourself or a luxury item you have bought with your own money is so much more rewarding.

4. They don’t budget for expenses

Your financial situation may not be very complex at this stage of your life — there is unlikely to be any shares or complex investments — but that doesn’t mean a budgeting system isn’t necessary.

Work out your living expenses each week, including utilities, and set aside a certain amount of money to cover these.

You could even set up a separate account within your bank and transfer a portion, maybe it’s 20 per cent, maybe it’s 30, to cover these costs every time you are paid.

This is fundamental.

The ability to budget for your expenses is one of the most important lessons you will learn.

5. They buy stuff they don’t need

Do you need another pair of designer jeans? Can you really afford them?

Do you really need the latest iPhone, when last year’s model does the job?

Do you need all that furniture?

Sure moving out of home is an exciting journey but your first property is unlikely to be the last place you will ever live. 

In fact, as you move through your 20s, you will replace one flat or share house with another before you find enough stability in your life to invest in your own property.

Then, and only then, should you invest in that four-poster wooden bed or the expensive dining table. It may feel very grown-up to buy such items but carting around heavy furniture from share house to share house is no picnic.

It is also a very fast way to blow thousands of dollars.

Furthermore, a lot of young people may make an interstate move for a job, which is not the time you should be wondering about what to do with that expensive Chesterfield.

Until you are truly settled, buy functional furniture only on a needs, rather than on a luxury, basis.

6. They get stung with unnecessary fees and expenses

Let’s start with the ATM fees that all add up.

Rather than walking a few blocks to find your bank’s ATM, you settle for a competitor’s only to be slugged $2 per transaction.

Do this a few times and you could have bought yourself lunch with that money.

Or perhaps you have not investigated the best savings accounts and are actually getting slugged fees for having too little money in your account?

Young people will often fail to shop around for the best deal and this means they could be paying hundreds of dollars extra, sometimes even thousands, in utility bills and insurance costs when there are cheaper deals out there.