NerdWallet’s CEO and Founder, Tim Chen, recently told reporters that his personal finance website sees several serious financial mistakes that young people are consistently making today. He says that if these problems are recognized and corrected early in a young person’s life they will can find peace of mind while building a secure financial future for themselves and those they may be taking care of.
Chen is quick to add that most young people are not well-grounded in financial planning, that it is rarely spoken about at home when they are growing up or offered as a class at many institutions of higher learning. But in these uncertain times, when inflation threatens and financial institutions are being freed from many previous restrictions and guidelines that are meant to protect consumers, becoming something of a financial planner is going to become a necessary skill set for survival. Yet very few young people in the United States take the time or trouble to think deeply about their personal finances or consult with financial planning experts, especially since many of them unfortunately are just coming out of a drug detox as well. Chen suggests that young adults concentrate on these three areas of their financial lives:
How to handle a 401(k) account
Retirement funds from a job are most commonly packaged as 401(k) accounts. These accounts are an excellent way to begin saving up for retirement, and most major and middling companies now offer their employees a 401(k) account as one of the main benefits of employment. Yet because young people so often change companies in America’s so-called gig economy, they can easily neglect, or completely forget, to rollover their accounts from their old job to their new job. Chen says that doing this is not rocket science, but just common sense. New federal regulations make it relatively easy for account owners to initiate the rollover within sixty days of starting a new job. Chen notes that usually after sixty days the companies that manage a 401(k) account will begin charging up to two percent for managing fees if the account is no longer active. This can add up to a significant loss if the account is neglected for years on end. Keeping the account active at a new place of employment prevents that from happening.
Refinancing loans to reduce interest payments
Many young people are under the impression their student loans, car loans, and first mortgages are locked in at a particular interest rate that can never be changed. But this is not the case. Most young people don’t take the time to check to see if they can get a better finance rate on a loan as their credit score improves over the years, or as interest rates themselves fluctuate. Chen suggests that young people reassess their loan payments every six months to see if they can find a better rate.
Too much month at the end of the money
Many young people, says Chen, make the mistake of letting their spending control them, instead of controlling their money with a simple budget plan. It all boils down to spending less than is earned. One example is to budget for eating out — once the limit is reached each month, the discipline of a budget kicks in and no more drive through meals or takeout happens. It’s an easy skill to learn. Keep credit cards for emergencies only.