By Cody Gehman, CPA

1. Failing to Consider the Long-Term Financial Consequences of Student Loans
Many students yearn for that prestigious university degree, but does it truly justify the expense? Too many students opt for that degree without considering the significant loan payments that will meet them upon graduation; debt that will consume a considerable portion of their income for the next decade – or more. Student loan debt is unique in the sense that it can almost never be discharged through bankruptcy.

So, think twice before signing up for your dream school. If you are going to school with a lean budget, consider a local community college to complete your general education requirements, then transfer those credits to a state school that will accept them. You are getting a good education at a fraction of the cost while also living at home to dodge room and board expenses.

2. Piling on Credit Card Debt
It is generally understood that responsible and regular use of a credit card is an effective way to build or rebuild your credit score. Unfortunately, according to a recent poll from creditcards.com, nearly 25% of millennials say they have been carrying a balance on their credit cards for at least a year. Researchers from Carnegie Mellon, Stanford, and MIT universities recently found that using cash versus credit cards activates different regions of the brain. They discovered that the brain’s pain centers are activated when paying with cash. These receptors are not triggered when using credit, thus leading to more spending.

George Loewenstein, Carnegie Mellon professor of social and decision sciences and co-author of the research paper, summed up this study well. “You swipe the card and it doesn’t feel like you’re giving anything up to make the purchase, unlike paying cash where you have to hand over bills.” Millennials and all consumers looking to save money should avoid the “pleasurable experience” of paying via credit when they know they can’t afford to pay off the balance at month’s end.

3. Not Saving for a Rainy Day
Like any other typical college student, you were probably broke. Upon entering the job market, money began falling into your checking account every two weeks and might have led you to believe you are due for an improved lifestyle. However, to get ahead financially, living within your means is not enough. Living beneath your means is the key to saving for a rainy day.

According to a Money Under 30 poll, 20% of millennials said they would need to ask for help from friends and family if an unexpected expense of $500 popped up. Many money experts recommend starting with at least $1,000 in an emergency account, with the goal to grow this to three to six months of expenses over time.

4. Buying a New Car or Too Much Car
You’re tired of driving around the junky beater; I get it. But let’s not forget the primary use of a car – to get you from point A to point B, not to impress your buddies. Going back to the first line under point 3, the extra money a new job brings might tempt you to get a new car. However, new cars are more expensive and depreciate faster than used ones. According to Carfax.com, a new car loses approximately 20% of its value in the first year, and some cars can lose up to 50%. On average, your car will depreciate 60% over the average five-year period it takes to pay off the car.

Mikey Rox from Wisebread.com provides a good example. “Let’s say you pay $20,000 for a brand new car and $3,000 in finance charges over the length of a five-year term. This brings the total cost of your car to $23,000. We’ll factor in a 19% rate of depreciation for the first year, which brings the value of the car down to $16,200. Your payments are $350 a month, or $4,200 a year, so by the end of year one, you’ll owe the bank $18,800. Sure, you’re making progress on the loan. But since the value of your car dropped nearly $4,000, you now have negative equity and you owe $2,600 more than the car is worth. Negative equity isn’t the worst thing to happen if you plan on keeping the car until it’s paid off. But if you’re the type of person who trades in vehicles every two or three years, negative equity can increase the cost of your next vehicle. If the dealership gives you $19,000 for your trade-in, yet you owe $22,000, the $3,000 difference doesn’t disappear. Instead, the dealer tacks the negative equity onto your next car loan. So instead of a sale price of $27,000 for your next vehicle, you end up financing $30,000.”

The bottom line – think about what else that money could pay for. Is your dream new car really worth those hidden cost considerations?

5. Not Saving for Retirement
Make certain you are taking full advantage of any retirement plan match contributions your employer offers, but also work toward contributing even more to your 401(k) and IRA. The longer your invested money has a chance to grow and compound, the larger the potential nest egg, which leads to a more comfortable retirement. Looking for a place to start? Stonepath Digital Wealth is our digital wealth interface that offers tax-efficient asset allocation and investment management with the ability to create your own basic financial plan. Our software allows you to integrate outside accounts so you have access to your full financial picture.


Cody GehmanCody is a graduate of Shippensburg University with bachelor’s degrees in both Accounting and Finance. He obtained his CPA license in 2016.