Your 20s can be a definitive time of your life. It’s a period when many individuals are carving out their career journey, finding a partner, and laying the foundation for the rest of their lives. And laying a strong foundation is particularly true when it gets down to your individual financial situation. There’s certainly a lot of time to recover from financial errors in your 20s, so it’s important to keep in mind that a single mistake isn’t going to impact you permanently.
But if you invest your time to plan and look out for the failures, you will set yourself up for long-term prosperity; therefore, we have made a list of money mistakes for you to avoid while you are in your 20s.
1. Going to college without a solid goal
Several young people are beginning their twenties, still saturated with student loan debt, to be taken through this decade. Before you pursue a costly academic course, ensure that your desired career field requires it–may be a business school, diploma or apprenticeship might be equally successful.
If you don’t know what you want to do professionally, that’s absolutely okay too. Work for a year and tackle the question. Try doing multiple internships in the fields that interest you the most. This will give you real-life exposure in the field you wish to go for. Do you want to find out the answer while you’re earning some money, or throwing it all away for the classes that you might not even really need?
2. Not building your credit
Good credit is important whether or not you are in support of using credit cards. Good credit allows you to obtain the best lending rates (if you ever need it), the most attractive credit cards, and cost-effective quality housing, whether you’re renting or planning to purchase. One of the most notable things to keep in mind when it comes to developing good credit is that it requires time. If you start developing it in the 20s, you can give yourself sufficient time to raise your credit score and seem like a trustworthy borrower to prospective lenders.
3. Spending all your money on food and drinks
Your twenties indeed is a perfect time to be interactive and spend time in cafes and social events with friends. Even so, getting dinner every night and purchasing rounds of drinks at the club is not sufficient to build meaningful memories with the ones you value the most. If the individuals you engage with are forcing you to spend money all the time to go out with them, they may not be hanging out with you just because of your charming personality. Finding fun and relatively cheap ways to be social, along with creating an entertainment budget will set you up for financial excellence.
4. Not having a savings account
Many young people make the mistake of assuming they need a massive paying job and a great deal of money to begin saving. Whether or not you make significant dollars, you should have a savings account to act as a money buffer. Even something as minimal as $20/month might make a significant difference if you really require additional money.
5. Buying a house too soon
In order to buy a house that you can pay for, and be content with, in the long run, it is necessary to have a strong and stable income. Housing is not only costly overall, but they are pricey to maintain and repair. If you do not pay at least 20% of the down payment, in addition to the existing mortgage, you will be required to pay the private mortgage insurance. Not to forget, closing costs would have to be included in the costs involved with the purchasing of the new house. After realizing what a massive financial investment to purchase a home could be, the logical route will be to take your time and try to improve your financial position before you jump into the sea of debts.
6. Racking credit card debts
Talking about debt, credit card debt is one of the most prevalent types of debt for younger people (along with student loan debt). As per a study taken by Rent.com, over three-quarters of tenants between the ages of 18 – 24 spend more than they receive each month. Getting used to using credit cards to spend more dollars than you receive monthly, will leave you with huge amounts of debt that might require you a few years to pay off. Like all debts, credit card debt will prevent you from achieving your other goals in life, such as marrying, buying a home, being able to afford to have children, going on holiday, and so on.
Learn to live within your means, maintain a financial budget and pay off your debts on time.
7. Not saving for retirement
When you’re in your 20’s, retirement appears to be too far away, making it incredibly easy to put off. That being said, not planning for retirement is one of the greatest (and most common) financial mistakes that you can make. The benefit of saving in your twenties is that time is in your team. The sooner you start investing, the more compound interest you can take advantage of.
A donation of only 5% of your income will contribute significantly to how much you’re going to have when you retire. You’ll either have to work harder and longer, contribute more later on, or not retire at all if you do not take advantage of this time.
8. Spending too much on a car
It is quick to fall into this pit once you begin to make a little bit of money. It can be a monetary error to spend so much on a vehicle that can take back many years of your savings. Financing a vehicle will complicate matters even more. Without a big car payment, saving cash can be difficult enough. Purchasing a used car is a perfect compromise for most individuals. Moreover, you would not like to take out a loan for a depreciating asset. The only option to get the value of your money from a vehicle is to drive it till it croaks. So, ignore the car loan and use cash to purchase cars at all times.
9. Spending more than you make
The best approach to creating wealth is easy: work within your means, month after month. But often, if we have to do without it, we feel deprived, especially if we hear that everybody else lives a better life. Even then, spending outside of your ability is not feasible, as you will eventually see when the bills begin to pile up. Learn to be content with what you’ve got. Spend less, and you’ll find that financial independence is far more motivating and satisfying than struggling to keep up with others.
10. Not having an emergency fund
Emergencies could happen to anybody, at any point in life. Those unexpected events could be anything from losing a job to an unplanned car repair bill. The Emergency Reserve can safeguard you from mountains of debt and bring you peace of mind while dealing with challenging circumstances. Many monetary specialists recommend saving at least three months’ earnings, or preferably more. Encompass your emergency reserves in your budget until it is fully financed.