smart spending

Avoid financial mistakes of 30-somethings

If you're in your 20s, chances are you don't spend too much time thinking about your finances. Budgeting isn't nearly as exciting as planning your Friday night.

But, if you don't start making good financial decisions now, you could be in for a rude awakening in your 30s. Bankrate interviewed three 30-somethings who know all about that rude awakening. Read on to learn how to avoid the same financial mistakes that they made.

Melissa, senior investment associate, age 32

When Melissa got her first post-college job, she thought she needed a nice new car and new clothes to match her career success.

She was able to find the car she wanted and a monthly payment she could afford. The catch was that she had to finance the car for six years instead of five, which added a lot more interest to the loan.

As for new clothes, Melissa thought it would be cool to have store credit cards for her favorite stores. The cards gave her discounts on her purchases, so she figured, why not? However, Melissa didn't realize that the cards carried very high interest rates, and she made the minimum payments on all the cards.

In just a few years, she had managed to rack up about $20,000 in debt. "I had to get real with myself and understand that I was living a lifestyle that I couldn't afford," Melissa says.

Fortunately, after consolidating her credit card debt, refinancing her car loan and seeking help from her parents, she was able to pay off her debts in just a couple of years.

Negotiate a deal on your terms

Melissa's story illustrates the need to be very cautious when making big financial decisions.

"Negotiate and always buy used, especially with cars," says Grant A. Webster, CFP and investment consultant at AKT Wealth Advisors LP.

Webster prefers certified used cars over new cars because cars lose a significant portion of their value after you drive them off the lot.

He recommends that people in their 20s follow the 48-hour rule when making big decisions. If you're buying a car, don't be afraid to ask questions and even walk out a few times. But wait two days before making a deal.

"If they say the car's going to be gone tomorrow, that's fine. It's not worth getting sucked into (a bad deal)," Webster says.

Find out what you're getting into

If you're thinking about getting a new credit card, call the credit card company and tell them to walk through every part of the contract -- particularly the interest rate and how high it can go. A lot of times you'll get a low introductory interest rate for the first six months, and then the rate will double. The card may also have a high annual fee.

"If it sounds too good to be true, it probably is," Webster says.

Melissa's story also illustrates the need to spend smartly in your 20s.

Don't just live within your means, live so far below your means that your lifestyle resembles that of a broke college student, says Kimberly Palmer, senior money editor at U.S. News & World Report and author of "Generation Earn: The Young Professional's Guide to Spending, Investing, and Giving Back."

"Living like you don't have that bigger paycheck is how you get ahead," says Palmer.

Raymond, graduate architect, age 39

In his early 20s, Raymond broke his neck and became a quadriplegic. If his injury had occurred just one month later, he would have had no insurance coverage -- he was on his mother's emergency medical policy, which expired the next month.

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