We all wish to be financially secure. Even then, we all make certain money mistakes we are never proud of. This is even worse amongst youths, with a combination of youthful exuberance and ignorance leading many into an endless cycle of debt.
Here are 10 common money mistakes you might be making in your 20’s and how to avoid them.
1. Shortsighted planning
For the most part, financial planning in our youthful years are shortsighted. Simple goals like paying the next rent and paying up the bills dominate financial planning. If you can afford to make – and keep – such short term goals, chances are you will be able to keep longer term goals too. Why not add long term goals like buying a house or starting a business to your list?
2. Rushing to buy a house
The allure of moving out and becoming your own person is so strong that it can be irresistible. As soon as there is enough money coming in to make the move, many take the chance and get out of home. While this is not a problem in itself, it is always best to hold out a little longer until you are truly ready. Take the chance while at home to save more and spend less on house bills.
3. Starting late to save for retirement
Okay, you are not retiring anytime soon. True. Does that make it less important to begin saving for when that time comes? Consider: by saving 20% of your $30,000 a year paycheck for 45 years, you would be able to save $1 million. As you wait longer to begin, you reduce the benefit of compound interest you can enjoy on your savings. Try saving up at least 5% of your earnings in a retirement account today, it could save you a ton of worry in the future.
4. Accumulating credit card debts
With interest rates on credit cards hovering around 16%, credit card debts can be a nightmare for young adults. As you let them accumulate, perhaps choosing to pay only the minimum monthly value, you find yourself stuck in a debt cycle you might not be able to shake off well into your thirties. This is especially bad as other expenses arise. Cut down on excess spending and aim to clear off your debts as soon as possible.
5. No credit records
Just as bad as accumulating credit card debts is having no records whatsoever. It is a good thing to try avoid debts, staying away from credit cards and loans and living within your means, but in the eyes of the lender that makes you a big risk. When you go to buy a home, get a car insurance, or even rent an apartment, your credit records will likely come under scrutiny; and no credit records might deprive you of some of these. Get a student credit card or a starter credit card and try building your credit. Be sure to pay them off on time too!
6. Extravagant spending
You’re young and you’re making fairly good money, why not treat yourself to some expensive stuff? This is a recurring thinking with every young adult. Before making the purchase, though, ask yourself: can I really afford this purchase on my current earnings and budget? Do I really need it? Treating yourself is great, no doubt, but if it comes at too high a cost you might live to regret it in the future.
7. Borrowing for a wedding
Tying the knot could be one of the most expensive decisions you ever took, pushing hard on expenses like buying a home or putting your kid in college. A wedding is a one in a lifetime activity, so it’s understandable that you want to make it as memorable as can be. But then, considering the increased cost of living that follows being a newlywed, is it really worth it adding to your bills and debts by organizing a wedding you cannot afford? A smaller wedding that keeps in tune with your pocket can save you a whole lot of future stress.
8. Failing with being frugal
As your debts pile up, and you hear of stories of those who cleared their debts in one fell swoop by being extremely frugal, it’s easy to consider going that route. There’s sure no harm in being frugal. But when you tighten your purses, leaving no room for fun spending once in a while, you end up creating room for binge spending. Tie up your budget; while at it, create room for miscellaneous spending once in a week, and be sure to keep it small. This would make your desire to clear your debts much less boring and much more rewarding.
9. No emergency savings
It’s admirable that you want to clear off your debts as quickly as possible and have a clean record. But if it comes at the cost of having no savings whatsoever, you need to review your plan. While having enough in the bank to pay your bills, feed, and clothe might seem great, planning for an emergency can make your life a whole lot easier. little setbacks like medical emergencies or job loss that force you to borrow come at a much higher interest rate than student loans, and can be very costly in the long run.
10. Spending to feel good
Mixing emotions with money has never been a good idea. Avoid going shopping simply because you had a bad day and want to feel a little better. Impulse buying limits your ability to save and can potentially leave you in a pile of debt, with tons of things you do not really need.