Top 10 financial mistakes young people make

By Karen Ho 
Financial Post
December 15, 2012 9:00 AM ET

Whether you’re a young person who recently graduated, just getting your career started or finally moving out on your own, it can be hard to keep track of your personal finances. Some of the biggest mistakes are also the most common and can seriously cost you in the long term. Here are the top ten, along with some tips on how to avoid them.
1. Misunderstanding credit cards
Services like Paypass are making them even easier to use. But credit cards are often misunderstood by young people, with small purchasing decisions often leading to long-term problems. Whether it’s cash advances, large balances, only making minimum payments, paying late or not paying at all, the small piece of plastic can be much more trouble than you realized. There’s also signing up for too many, unnecessarily increasing your limit and wrecking your credit rating.
“Credit card debt is spending your future income before you’ve earned it, and not magic money,” said Lisa Yanaky, a young woman from Toronto.
2. Not utilizing discounts
Banks, car dealerships, even theatre tickets, travel and cultural attractions. There’s a world of special prices for students and young people out there, but you can’t get to them if you don’t ask or research them beforehand. Some of the options include the International Students Identity Card, or the Canadian Opera Company’s program for patrons under 30.
3. Signing up for a rental/mortgage that’s too much of a burden
If you choose a place that leaves you with only a little bit of money to do anything else, you’ll be stuck spending most of your time at home. You’re also more at risk of accumulating credit card debt for making up the difference in your lifestyle or paying for unexpected costs, like maintenance.
4. Not having a budget
If you don’t sit down to look at what’s left after your wages and fixed expenses, it’s hard to determine how much you can afford to spend on things like food, nights out, or an upgrade to your cell phone plan. Not knowing how much you have can easily lead to spending more than you can afford. A budget can help you determine what you need to do to pay for your next vacation or make you realize you need to start packing lunch more than once a week.
5. Not having a “rainy-day” fund
Setting aside money for emergencies gives you a cushion for unexpected events and helps you avoid adding to your credit card balance. You never know when your car needs repairs, you crack a tooth on a fall or your bike gets stolen and needs to be replaced. This needs to be a key part of your budget, even if you start with a small amount every month. Eventually, the money will add up. You’ll also know the next time something arises, you’ll be prepared.
6. Failing to realize how “little things” add up
You can call it “the latte factor,” but your daily trip to Starbucks, half-pack of cigarettes a day or $100 a week at your favourite local bar or restaurant can all add up to to thousands of dollars a year. A small modification in this kind of spending can help you put aside more for money for savings, retirement or paying down your debt.
7. ATM fees
The bar only accepts cash (of course) and you have no idea where the nearest bank machine is. So you use the conveniently-located ATM there for $20. Trouble is that transaction cost you an extra $3 and you do it four more times during the rest of the month. All those fees quickly added up to the cost of a lunch.
Try hiding an extra $40 in your wallet for emergencies and stick to withdrawals from machines that belong to your bank.
8. Falling into the trap of automatic pre-payments
You linked your gym to your bank account figuring you’d never have to worry about having to pay a bill. That is, until you forgot it hadn’t come out yet and took out $40 for drinks with friends and left barely anything left. If the bank goes to get the monthly amount and finds nothing there, you’ll be hit with a giant insufficient-funds fee.
You can easily track this by setting up email reminders or calendar alerts, so you’ll know when you need to keep a little extra in your account.
9. Opening an account with a significant other
You’re in love. What could show your commitment more than moving in, opening an account and sharing all your financial responsibilities? Doing so too early or without a clear plan for who pays what (and exactly how much) could be one of the most expensive financial mistakes you ever make. Even with a steady job, your personal and financial situation can rapidly change, along with the status of your relationship. If trust issues occur, problems can quickly develop and lead to one person shouldering a majority of the financial burden.
10. Not regularly planning for the future
Have plans to eventually own your own place, go to graduate school or travel the world? You may think planning for the future is only for people thinking about retirement, but everyone can benefit from financial advice. Speaking to a financial advisor or financial services manager can help you figure out what you need to do to afford your dreams. Also, don’t forget to check in when major life changes occur, as your financial priorities will probably shift too.