Mistakes to avoid during 20s
The 20s is a beautiful and life-changing era in almost everyone’s life. With the teenage ending, people start placing their first step onto a world of duties and responsibilities. The 20s is also when you start to plan for the coming decades. Apart from family responsibilities, you might have to shoulder financial responsibilities as well at this age.
But the 20s is also an age when we make a lot of money mistakes, especially since we are new to handling money. Let’s take a look at some of the frequent money mistakes to avoid in your 20s.
1.Not learning how to Budget
The 20s is probably when you get your first job. With a new life and sometimes, a new city, we will often forget to learn to budget. But a budget is a prerequisite when it comes to financial planning and not maintaining records on the expenses and influx of cash can lead to confusion and imbalanced finances. Keeping a budget is as simple as recording your income, tracking your expenses, establishing goals, and adjusting your financial activities accordingly. A budget helps you to identify avoidable expenses and optimise spending as well.
2.Spending more money than you make
With you earning more and more money, there could come an urge to spend more, especially in your 20s when life is full of possibilities. This could make you spend more than you earn and if that happens, you could get forced to take out loans to settle your debts. Hence, it is always advisable to have track on your earnings and make sure you cut down your unnecessary spending.
3.Taking on credit card debt
A credit card is often very lucrative. It gives you a false image that you have a lot of money to spend. This could create huge credit card dues. Then, minimum payments and late payments could pave way for huge credit card debts. A credit card carries a huge interest of about 36% per annum on average and paying minimum will only pay off the interest mostly.
4.Failing to set financial goals
It is important to be specific and to have a clear idea about your financial goals in today’s world. Lack of planning could cause you to end up with fewer savings than you would have preferred in your retirement years. Lack of savings also leads to lowered financial security and it could result in mounting debts.
5.Not starting to save money
Consider the scenario when you are retired, happily leaving your life in a routine and a financial emergency occurs. But you haven’t planned for something like this adding to that, you were a quite lavish spender. And now, you are left with tensions on how to tackle this unprecedented financial difficulty. You might wonder how would saving money in your 20 matters to financial woes in your retirement age. But the fact is that some people end up not starting to save at all. The best time to start investing is as early as possible and starting to save in your 20s gives you an edge to plan till your retirement age.
6.Not having an emergency fund
An emergency fund can always come in handy in case of unexpected loss of savings, like a job loss or a medical emergency. When your income gets halted suddenly, an emergency fund can help you navigate through the tough times until you get back on your feet.
7.Not building a good credit score
A good credit score is proof of that you haven’t defaulted on loans. It assures trustworthiness. Building a good credit score is very important in your eligibility for future loans and if you don’t take action to fix it, it could end up affecting your dreams such as building a house.
You see a piece of beautiful furniture which can go well with your interior which might cost you around three-quarters of your monthly salary. However, you already have similar but lower-quality furniture in your home, which means buying this might be nothing but an unnecessary expense. But if you feel like you can afford it and you end up buying it. This is the classical example of careless spending. In your 20s, when you are starting to earn big, it’s common that you fall trap to it. But it could lead to a money crunch when times get tough. Hence, it is always important to take a moment and figure out how important buying something is before you decide on buying it.
9.Delaying savings for retirement
There is a common misconception that you don’t need to start saving for your retirement in your 20s. But a lot of people forget the fact that building wealth takes a lot of time. Plus, retirement could mean a complete stoppage of your income and you might have to depend on your retirement fund for years. Hence, it is important that you start your retirement fund as early as you can.
10.Not taking calculated risks
The richest among us are people who once took a risk. You need risk to be able to succeed. The key is to make sure the risk is well thought of and calculated.
The 20s could be the best times of your lives. But when you have your prime health and lesser responsibilities, you should consider your future self and act accordingly. Follow the above pointers and make sure your future is happy and secure.
- Team IFA