Money Mistakes to Avoid in Your 20s
Being in your 20s means adulthood is still fresh, new and exciting. There are many adjustments you may need to make as this decade is full of transitions. Whether it’s just graduating college, paying bills yourself or starting your career, you’re going to face more financial responsibilities.
It’s crucial that you develop a wealth mindset and become aware of the common financial money mistakes people make in their 20s to avoid them. This will benefit you in the long-run, setting up your future for financial success.
Not Saving for Retirement
Saving for retirement at a young age doesn’t seem of importance because retirement is far into the future. However, not saving for retirement in your 20s is a mistake you don’t want to make. The earlier you start to save, the more compound interest you’ll accumulate. Aside from saving for retirement on personal terms, you should always opt to invest in your retirement if your employer provides a retirement savings plan.
Younger individuals may brush it aside, but contributing a small percentage can make all the difference in how much you’ll have once retirement does come around. The best part is some employers may even match your contribution. If this is the case, you’ll definitely want to contribute, as this will give you the most out of your buck.
Although retirement is far into the future, you should take advantage of how much you can make by saving for it earlier on.
Not Building Your Savings
In your 20s, you might not think too much into financial emergencies that may occur in the future. Having a savings account offers you a financial safety net when emergency expenses occur. Without a savings account, you won’t have a backup when you need it the most.
This creates heavy financial stress and may lead to you paying it off on a high-interest credit card or even pulling out a new loan. As both of those alternatives result in paying more and put you in debt, it’s not an ideal situation. Without having a savings built-up reaching debt and the possibility of becoming bankrupt is much more likely. That’s why it’s crucial to start building your savings and avoid living paycheck to paycheck.
A healthy habit to develop is paying yourself first, by immediately transferring a percentage of your income to your savings each time you get paid.
Spending More Than Your Earn
Being in your 20s can be some of the best years of your life. That being said, there is a great amount of temptation to spend money is one of the biggest money mistakes. You might not have as many responsibilities which means you’re probably more open to spending your cash on clothes, drinks and eating out often.
This can lead to spending more than you earn, and this is a mistake you don’t want to make. Because of the temptation and minimal responsibility, mindless spending might be an unhealthy habit you carry. It’s important to have financial awareness and spend less.
If you’re unsure about how much you’re actually spending, it may be a good idea to track your purchases to see where your cash is going and what improvements you may need to make.
Avoiding a Budget
Budgeting is always an important financial habit everyone should take part in. It helps your overall financial health by knowing exactly how much you intend to save, invest and spend. This helps you track the financial habits you have and gives you the opportunity to create a strategy behind every transaction you make.
Many of those in their 20s are unfamiliar with how to manage their finances. By starting familiarizing yourself with how to probably manage your money you’ll be taking financial control.
If you start learning how to budget at a young age, you’ll get better about it as time goes on.
Not Setting Financial Goals
Having long term and short term financial terms is critical when you’re in your twenties. Developing these habits will set you up for success in adulthood and help you navigate your finances. Start by setting realistic goals. Do you want to have a manageable rent-to-income ratio in the next five years? Would you like to be debt-free by thirty?
Setting financial goals helps you maintain your budget and focus on the long term reward. Start small and tackle these decisions early on. Thinking financially into the future is hard when you’re young and haven’t had to think about finances.
However, incorporating setting goals will stay with you into your thirties and help make you more financially responsible.
Being in your 20s gives you many opportunities. If you’re financially responsible by budgeting, saving and investing early-on your future is going to benefit greatly. To get rid of money mistakes, building healthy money habits while you’re young will reduce and possibly eliminate financial stress in the long-run.
Avoid these Money Mistakes to Avoid in Your 20s and you will be successful in your life.
You’ll be thankful you decided to make healthy financial changes in your 20s, giving you a financially successful future.