Stay out of debt in your 20s
Once you graduate college and find a career
job, you probably will not be able to start investing
n a 401(k) and buy a house. The main priority while you’re
in your 20s is to try and stay out of major debt.
Jonathan Clements’ article, “Keeping Your
Financial Footing at 22 -- So You Can Buy That House at
32,” located in the August 2, 2006 edition of The
Wall Street Journal, focuses on the importance of struggling
to remain out
of debt while you gain income towards eventually buying
your first home.
“I am not saying all
debt is bad, and I am not arguing that folks in their
20s, if they have the money, shouldn't purchase homes
and fund 401(k)s.”
If you are able to pay all your bills on time, while taking
out an auto loan, you should be on the right track.
Debt piles up quickly, especially once student loans hit.
“According to the College Board, an association
of schools, colleges and universities, 73% of graduates
from four-year nonprofit private colleges had student
loans outstanding, with $19,400 typically owed.”
The problem with paying back students loans is that there
is typically a six month grace period awarded to the borrower
from the graduation date.
As a result, the first few all important months after
graduation, when young adults are struggling to find a
way to pay bills on their own, do not include student
loan payments.
This is thought of as a good thing, but many recently
graduated students live month-to-month and then six months
later, bam!, another bill. And student loan bills are
usually a couple hundred dollars a month.
“Once
kids get into the work force, this debt can cause a heap
of financial stress. New York's Alliance Bernstein Investments
recently surveyed college graduates between ages 21 and
35. Among those who graduated with debt, 42% said they
were now living paycheck to paycheck, versus 24% of those
who graduated debt-free.”
Debt goes beyond student loans. Many graduates have credit
card balances of $3,000 or more. As they struggle to survive
on low paychecks, credit card bills are often the first
sacrifice.
“With any luck, your post-college
financial struggles will ease as you approach age 30 and
start getting some decent salary increases.”
“The typical first-time home
buyer is age 32, according to the National Association
of Realtors, based in Chicago. Similarly, surveys by the
Investment Company Institute in Washington suggest people
typically start investing in mutual funds in their late
20s or early 30s, with their first investments often made
through 401(k) or similar employer-sponsored retirement
plans.”
You can make it as long as you stay out of debt. Student
loans, auto loans and credit card payments will most likely
give you the most trouble because they are the most expensive.
A tip with credit cards is to try and use a bank debit
card. This way, the balance is automatically deducted
from your balance. Not having the funds in your account
to cover the purchase may be an indication to not to buy
it.
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