It is very easy to make financial mistakes in your 20s. Many people make poor financial decisions that have a lasting impact on their lives. In your 20s, it is the best time to start planning your life, making investments, and planning for retirement. It is the best time to take risks before obligations sets in. In the 20s, it is when we make most adjustments in life like moving from our parent’s homes and adult life starts setting in. In this article, I am going to highlight common money traps to avoid in your 20s.
1. Failure to Save
One of the biggest money mistakes to avoid in your 20s is failure to save. You should start saving from your first paycheck. To become financially independent, you need to start saving early to accumulate good reserves. Financial experts say you should save at least 20% of your monthly salary. When you receive your salary, you should first set aside savings and then allocate the rest of the money to other obligations depending on your budget.
2. Failure to Budget
Failing to budget is one of the common money mistakes to avoid in your 20s. Budgeting helps you spend sparingly and set aside money for savings, investments, emergency funds, and expenses. It also helps you minimize unnecessary spending. This way, you can become financially independent very fast. You can draft a budget manually or use budgeting tools. Make sure to stick to your budget.
3. Failure to Invest
Failure to invest is another money mistake you should avoid in your 20s. Many young people assume that investing is for the old people. If you start investing when you are young, you will have lots of sources of income by the time you are hitting middle age. In your 20s, it is the best time to take bold risks since you don’t have many financial obligations. Venture into business and money-making ventures. Seek to establish passive income sources.
4. Failure to Set Financial Goals
To become financially independent, you need to set financial goals. What do you want to achieve at a particular time? In your 20s, it is the best time to set goals and work towards them. Set investment goals and keep track of your progress. Find ways to improve ways to achieve your financial goals. Understand your expenses and needs and then prioritize what is important.
5. Impulse Purchases
Again, the other common money mistake to avoid in your 20s is impulse buying. More often, it is a result of failure to budget. When you have a budget and you stick to it, you will avoid impulse purchases. Also, the wish to look rich is making many youths waste money on impulse purchases. Focus on building actual wealth instead of wanting to look rich. Think first about saving and investing then you can use the returns on treats.
6. Buying a Car when You Don’t Need One
The other common financial mistake to avoid in your 20s is buying a car when you don’t need one. There is no harm if you need one and your budget allows it. It is because buying a car comes with lots of other unforeseen expenses. The average person spends about 20% of their income on car maintenance. This money can go a long way if it is directed into savings or investments. As such, if it is possible, sacrifice the pleasure of driving for long-term financial independence.
7. Taking Many Credit Card Debts
If you are a student, avoid taking credit card debts until you get a job. While credit cards are important and help you build a credit history, they can put you into a debt trap. In the 20s, we earn low incomes and we may want to boost our income by taking card debts. Credit card debts can accumulate lots of interest that can cost you later. If you already have a credit card debt, come up with a repayment plan right away.
8. Failure to Set Up an Emergency Fund
Many times when we get an emergency, we are forced to dig into our savings. To avoid such money mistakes, it is important that you establish an emergency fund in your 20s. Set some amount of money that goes into your emergency fund every month. When an emergency arises, you won’t have to dig into savings to bail yourself out. This prepares you for life’s curveballs like the loss of a job or retrenchment.
9. Trying to Keep Up with Peers and New Trends
If your peers are spending money on trendy stuff and expensive treats, you don’t have to follow their path. They may not have financial goals like you do. That is why it is important to be you and stick to your budget and goals. You shouldn’t give in to embarrassment or the feeling of inadequacy. You can find other ways to have fun without falling into debt or spending too much than what you can afford.
Read also: How rich people spend their money.
10. Spending More Money than You Earn
Spending more money than you earn is a huge money mistake you should avoid in your 20s. Spending more than you earn will force you to borrow loans to finance your expensive lifestyle. Learn how to live a simple life even if you are earning a lot. This will help you sacrifice short-term enjoyments for long-term financial independence.
Summary of Financial Mistakes to Avoid in your 20s
Learning financial discipline in your 20s will help you become financially independent at an early age. It will help you save, invest and earn returns from your investments. The secret is to forego short-term pleasures for long-term gains. Avoid poor financial moves that could have a long-lasting impact on your life. It will also save you from falling into a debt trap.