Ah, to be 20 again. Well, I am still in my 20s, and I have to say, adulthood is still so new and exciting despite being in the mid-region. Every day is a new day to discover what it means to be independent. Going to college was one thing, but thinking, planning, or actually buying a car, house, and getting your first job can make you feel like you’re rich but, are you really? As much fun as it is to be young, trust me, your 20s can make or break your financial future. Thus, to set yourself up for financial success, here are 7 money mistakes to avoid in your 20s.
1. Failing To Understand Your Student Loans
Applying to colleges or universities is a very long and excruciating process. Most of us spent our whole academic career preparing for this moment, and if you get accepted to your dream university, you’re just so excited that you don’t really care about the student loans. You look at the bill, and you think, ‘This is Monopoly money. This isn’t real.’
Well, I hate to break it to you, but people like us, with student loans, are actually giving ourselves a harder time on our personal finances than those without student debt. There is no secret formula on being debt-free other than to start planning. Don’t accept student loans that are more than you need, and think ahead on how you will pay back your debts before it’s too late!
2. Forgetting To Budget Or Track Expenses Earlier
When starting to budget or track your expenses, finding a system that works for you is the hardest part. There is an abundance of budgeting systems you can choose from out there, but a personal favorite of mine would be the ‘50/30/20 Budget’ rule. 50% of your monthly income goes to your necessities such as housing, utilities, transportation, food, etc. The fun part is your 30% where it goes to your ‘wants’ or personal expenses such as that sweater you’ve been eyeing or that fun activity your friends have been planning for months. There’s nothing wrong with treating yourself once in a while!
Finally, never forget about your 20%, which is your savings. Whether it’s savings for the future or paying off the debt that you still have, having a portion of your income goes into savings is crucial to avoid stumbling into an unexpected emergency with no backup money in your bank account. All in all, this budgeting plan might not work for everyone, so keep trying and find the suitable method for you.
3. Buying Unnecessary Things
With online shopping becoming more and more of a thing, it is too easy to buy stuff on your phone with just a click of a button. Thus, one way you can treat this is to not get into the habit of buying things off your phone. Practice making your purchases on your computer or laptop since it does make the process a little less convenient.
Another tip you can do is add things into your cart to give yourself that sense of ‘online shopping’ while doing the waiting game. Give yourself 2-3 days to simmer on your decisions, and if you still want that item after a certain period, only then can you purchase it. This will help lessen any impulse buying that you will surely regret in the future.
4. Not Starting Retirement Account Sooner
It might seem like such a faraway thing for now, but when you’re young, time is your biggest asset, especially when it comes to compound interest. The sooner you get started, the more money you can put in and the more interest you can gain each year from it. You have to continue reminding yourself that this money will go into a massive investment for yourself. These interests are essentially free money you get just for keeping your money in the account.
However, the most crucial from this tip is never to touch your retirement accounts until you actually retire. Just forget that it exists and reap that benefits when you’re older and retired.
5. Failing To Learn And Start Investing Earlier
Many people associate investing with scenes from The Wolf Of Wall Street with people jumping and screaming at the stock market. However, the type of investing I’ll be mentioning is a lot more mellow because, in today’s age, technology has done a spectacular job democratizing investing for the people.
You can start by saving 5-10% of your monthly income and invest it. Instead of having your eggs in just one basket, you will now have your monthly income and interests from your various investments. Regardless, the key is to start now by doing thorough research on the markets you’re planning to invest in and be patient!
6. Forgetting To Pay Your Credit Card Right Away
A credit card can be the devil, but it can also be an amazing thing if you know how to use it correctly. You can build credit to buy houses or cars in the future, earn rewards, cashback, and collect mileage points for traveling. Nonetheless, things can go poorly if you forget to pay off your credit card.
Every time you swipe your card, you are essentially borrowing money from your card issuer, and if you don’t pay it back, the interest grows, your credit will go down, and that will affect your future purchases. Hence, when you start using your credit card, remind yourself of this Spider-Man quote, “With great power comes great responsibility.”
7. Avoiding or Not Asking For Help
Ignorance is definitely bliss, but when reality hits, it hits you like a truck. A lot of the time, anxiety comes from the unknown, which is why it is crucial to educate yourself. Luckily with the age of the internet, there are tenfold resources you can find online about finances and investing from people such as Graham Stephan and Investing With Rose.
You can also read numerous books to be more financially literate such as Think And Grow Rich by Napoleon Hill. However, the fastest route that I would recommend is to ask the people around you. There is nothing wrong with asking for help, especially from family, or if you have financially savvy friends, that is even better.