If you are still in your 20s, your money management skills may not be the greatest yet. Many of us end up making big money mistakes in our 20s that unduly complicate our financial futures. Sometimes, it’s beneficial to learn from the mistakes of others before you make your own! Read the below tips to avoid several crucial money mistakes in your 20s.
Mistake #1: Overly Relying on Your Parents
We all know the stereotype of an unemployed young man in his 20s and 30s who spends his days playing videogames and devouring Doritos in his mother’s basement. Few of us aspire to be this young man. While it is widely acknowledged that housing prices have gone way out of whack, and it’s getting harder and harder to afford a one-bedroom apartment, let alone buy a house, it is still important to make a living and try to improve your skills and income. Like it or not, we all face the reality of having to make our way in this affordability and cost-of-living crisis.
Once you’re able to strike out on your own, even if it means living with roommates initially, you will feel differently about yourself and the world. The colours will seem a little brighter because you’ll finally be running your own life, living in your own space. It may be more expensive financially, on a surface level, but in the long run, not moving out will cost you more, not just financially but in terms of your personal growth. Embrace the independent life and endeavour to grow professionally. You won’t regret it!
Paradoxically, by achieving an independent life instead of relying on your parents, you will actually be better off financially in the long run because you will learn how to upgrade your skills and make more money. Life’s necessities and having everything fall on your shoulders will compel you to think fast on your feet. Necessity is the mother of invention, and it will accelerate your personal growth in no time. This is perhaps the most important point on this list, so it’s covered in the greatest amount of detail.
And if you are unable to cover some important expenses, well, life’s a steep learning curve for everybody. When in need of a quick cash loan, Crediteck may be able to help! We will connect you with a lender in a flash – just fill out our quick online application.
Mistake #2: Using Credit Cards Recklessly
When you get your first credit card, you may be tempted immediately to start spending reckless amounts of money. However, remember that you’ll have to pay off your credit card balance every month. If you’re unable to make the monthly payments, your credit score will take a hit. Over the long haul, a poor credit score may prevent you from achieving many milestones that you would like to achieve, such as getting an apartment of your own or buying a house. Keep that in mind and keep your credit card spending under control.
Mistake #3: Needless, Large Purchases
Are you pining for a luxurious all-inclusive vacation or a brand-new sports car? Is it worth going into debt for these amazing purchases? The answer is a resounding no. While it may bring temporary joy and glitter into your life, these large purchases will likely compromise your long-term financial situation. If you can avoid them, it will be best for your wallet and for your financial future. It is important to keep short-term gratification at bay as your future prospects will otherwise suffer.
Mistake #4: Accruing Unproductive Debt
It’s important to know the difference between productive and unproductive debt. Productive debt can include a mortgage loan, giving you the benefit of home ownership. Meanwhile, unproductive debt is a constant drain on your finances that provides you with no assets or tangible benefits other than, possibly, false bragging rights.
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Mistake #5: Not Saving for Retirement
Don’t put off saving for retirement. There are several good reasons for this. First, you need to give compound interest a chance to work. It won’t start growing your savings in an appreciable manner until several years have passed. The sooner you start saving and investing, the greater the compound effect will be. Unless you start in your 20s and 30s, your future retirement could be compromised. By the time you reach retirement age, you may find yourself stranded without the financial resources to support the lifestyle you want.
Mistake #6: Ignoring Your Credit Score
You ignore your credit score at your own peril. Your credit score will affect your ability to get favourable interest rates on loans. If you wish to buy a house, your credit score will play a large role in the bank’s decision. They won’t give you a mortgage loan if you don’t meet their basic requirements. Similarly, you are unlikely to get approved for an apartment without a good credit score. Keep that in mind as you go about your day-to-day financial decision-making.
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Mistake #7: Lacking a Budget
If you’ve been going through life without a budget, chances are that you’ve already had some runaway expenses. Reconsider your strategy. If you’re going deeper into debt instead of saving money, if you’re having sleepless nights due to nagging money worries, something needs to change. That something could be as simple as writing up a realistic and intelligent budget. Take into account your monthly income and the wants and needs you spend your money on, and consider whether it is possible to increase your income, either by taking on a side hustle or upgrading your career skills.
There are ample opportunities to increase your income. You could learn a new skill like coding within weeks or months. All you have to do is sign up for online courses or watch tutorials, some or many of which are free. Even tech giants are growing less strict in their degree requirements. You could get a job with a great tech firm after completing a mere bootcamp, in some cases. There are always options – but you have to look for them actively and not give up at the first sign of struggle.
Mistake #8: Lacking an Emergency Fund
There are many situations in life in which you might need an emergency fund. You might get laid off from your job, suffer an illness, or need urgent car repairs. In all of these cases, an emergency fund will come in handy, more than handy. Aim to have at least three months’ expenses saved up in case of emergencies. If you have to downgrade your lifestyle to a less expensive one, perhaps it’s a step you must take to secure a better financial future for yourself and achieve that elusive peace of mind that you’ve been craving.
Mistake #9: Ignoring Your Student Loans
Ignoring your problems doesn’t make them go away. If anything, ignoring your student loans could lead to some nasty surprises down the road. Confront your fears – find out whom you owe the loans to, how to make the monthly payments, the details of the interest rates, if any, and so on, and begin making a plan to pay off these debts even as you strive to establish yourself in a career. It’s a tall order, and many young people in their 20s and 30s are struggling with the burden of student loans. For many, it’s an unavoidable reality, and one that they must confront for a better future.
In Summary
All these possible money pitfalls may seem overwhelming. There are so many traps that a young person in their 20s may fall into as they struggle to get on their feet and establish themselves, especially in today’s never-ending cost-of-living crisis.
However, it may not be as difficult as you think to avoid some of these mistakes. Some of them are more about exercising common sense than any special financial know-how. Make good choices for yourself, rather than worrying about what other people think. Set some goals, stick to a plan, and avoid hasty decisions. It’s better to pay now and party later than to fall deep into debt like a slow-moving collision, without having made progress on your most important goals.
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