Your 20’s are your first taste of many new experiences. Whether it’s financial independence or moving out of home for the first time, there are many experiences that make you feel independent and powerful; however, with power comes responsibility. As much fun as it is to be young and free to do as you will, your 20’s can make or break your financial future. This time is an opportunity, to prepare for the coming decades, to prepare for your future. So here is our list of money mistakes every 20something should avoid.
1. Avoid credit cards
Anyone who is starting to earn, or has recently become financially independent, has considered getting a credit card. While credit cards perform a valuable service by helping you build a solid credit score, they can also be a slippery slope, one that can see you spending over your means. The unlimited spending can be a trap that some can’t resist.
At this time of life, most people just start earning low incomes, which can make credit card bills seem overwhelming. And that makes it tempting to pay only the minimum balances. However, if you fall into the minimum payment trap, it will cost you a lot of interest later on. So whatever age you are, figure out how to free your future self by coming up with a more powerful debt repayment plan.
2. Make a plan
A good financial plan is absolutely necessary to maximize your income, help you invest wisely, and avoid unnecessary taxes every year. Invest in an annual session with a financial planning professional, hire a good CPA (Certified Public Accountant) at income tax time, or hit the library and study up on your own.
While understanding things like tax rates, income tax, and property tax might seem daunting, it is essential in the long run, not only in terms paying what you owe but also to reap the benefits of the taxes you pay.
3. Save for retirement
Okay, I know it seems excessive, you are just in your 20’s you have your entire life to work and earn and save up. But the down and dirty on saving for your retirement is this: the sooner the better. Saving a little now is much better than giving up on things later, or worst not having any retirement money at all.
The standard advice is to try and save between 10 to 15 per cent of your income for retirement, starting in your 20’s. It will ensure you have a healthy fund that will make your golden years truly golden.
4. Act Your Wage
Living life in your 20s can be a blast. With your newly earned income and the freedom to spend it as you will, the world is your oyster. From great clothing deals to meals and drinks with your friends, you can easily spend all that you earn and more.
It might seem like a good idea to buy that expensive car or that branded watch in order to impress others or just show off, especially with a credit card in hand, but this is not only a huge financial blunder now but a mistake that can have major consequences down the line. Part of becoming a “real” adult means not needing to have everything all at once. Learning to live within your means now can set you up for a fantastic financial future.
5. Make an emergency fund.
Emergencies can happen to anyone, at any age. Those unforeseen circumstances may be anything from losing a job to an unexpected car-repair bill. An emergency fund can protect you from crippling debt and give you peace of mind while facing stressful situations. Many financial experts suggest saving at least three months’ worth of salary, and preferably more. Include your emergency fund in your budget until it’s fully funded.
6. Set financial goals
Saving for your financial goals as an adult isn’t so different from saving up your allowance to buy a game or gadget when you were a kid. Financial goals can be short term — like saving for a much-needed vacation — or longer-term, like building up down payment money for a home, or investing your money in stocks.
The first step is to pick a goal. Then, look at your monthly income and your spending on basics and recurring bills. Any funds leftover can be put toward making your dream a reality.
7. Spring for insurance
As a healthy 20-something, it’s tempting to think you can avoid getting health insurance. And what’s the point of renter’s insurance if you’re a responsible tenant?
But the thing is, you never really know what’s coming. Making small monthly insurance payments may save you a world of grief if you’re hit with a massive medical bill, or if someone breaks into your apartment and steals your high-end laptop. Without insurance to help with those sorts of expenses, you may have to dip into your savings or resort to the dreaded high-interest credit.
A topic we often shy away from, but one that has the potential to skyrocket your finances. Financial advisers agree that investing is the fastest way to build your wealth. Starting in your 20s will give your money time to grow into a big future payout.
Online investment platforms are making investing easier than ever; apps and automated investing services use computer algorithms to create and monitor your ideal portfolio of stocks and bonds and get you the best returns. You can even set up automatic deposits into your investment account, so you can grow your wealth while you sleep. Or take the traditional route and find something you believe in and invest a little capital; it could be an upcoming startup or even an already established organisation that you feel has potential.
9. Money mistakes are inevitable
One money mistake likely won’t hurt you forever. Your 20s are a time to learn, grow and find yourself — so don’t let the fear of a mistake get in the way of your personal development. These mistakes are common for a reason: they happen to everyone! They are mistakes I have made and might still make. As long as you know what to expect — and maybe watch out for a few of the bigger traps — you can prepare in advance and minimize these common money mistakes.