Common Financial mistakes are usually made due to habits, or peer and social pressures. Being in your 20s can be a very challenging time in your life especially financially. Your desire to climb the success ladder very soon and spending mindlessly leads to serious financial pitfalls. This period is where the real responsibilities kick in besides all the fun and frolic, you have on your time. The money spent in your 20s from overspending habits to student loans to pending credit card bills is financial blunders that will stay with you for a long time. Hence, to overcome financial troubles and to sail through decades to come, set up a financial road map for a financially secure future.
I have compiled for you world’s 10 Most Common Financial Mistakes to Avoid especially if you are in your 20s or 30s.
10 Most Common Financial Mistakes to Avoid in Your 20s
1. No Financial Road map
The biggest financial mistakes you make in your 20s is not setting financial goals for the future. Concentrating on short term financial goals like paying the bills, rent, groceries is not going to give you a secure future. Plan a financial road map on how you want to achieve Financial Freedom and Security in the years to come. Be it luxury travel, an investment, or money for retirement. (It’s not too early to think about a secure retirement).
However, be wise in making your choices and set targets of how much you want to save in a year and work towards them. Setting parameters for your budget will avoid any serious financial problems to surface up in the future. Watch the popular Video by the Money Blueprint Expert T. Harv Eker on 6 Jar Money Management System Easiest Money Management System for Financial Freedom.
2. Living off Credit Cards is a Common Financial Mistake
Being in your 20s, you tend to live off more than you need and more than what you earn. Spending notoriously and racking it all up on the credit card is a very common financial mistake and also a very serious financial blunder.
You end up paying off your credit card debt for years and do not have the ability to save for an emergency fund. To avoid such common financial mistakes, it is best to plan a monthly budget, focus on your needs over your wants and pay off your credit card bills in full every month. Do not let late-night online shopping lure you into using your credit card and be stuck with EMI’s.
Even so, successful entrepreneurs like Mark Cuban (remember him from the show Shark Tank?) highly suggests to avoid using the plastic (credit card) and instead live off cash as often as possible.
3. Rushing to buy a House or a Car
If you can afford it, I say, buy it but buying a house or a car is more of a liability than an asset. It is a great feeling to own a house or a car of your own but ownership leaves you with debts that last a lifetime. This common financial mistake leads to living out of a tiny pocket.
If you are in your 20s and want to have fun yet save money- the best option is to rent a car or buy a second-hand car. If you don’t have kids yet then rent a place you can afford. Even better, rent a place with your friend to save on costs. You don’t want to be under a mortgage you can’t afford to pay leaving you with serious financial problems. The theory of investing in a home is best described by Robert T. Kiyosaki. In his Best Seller Book, Rich Dad Poor Dad – where he explains what the Rich Teach their kids about Money – That the Poor and Middle Class Do Not!
4. Spending more than you Earn is a Common Financial Mistake
Another very common financial mistake that people in their 20s make is to spend lavishly beyond the capacity of what you make. In today’s time, millennial’s make financial mistakes only to experience instant gratification. Spending money is usually confused with happiness. Feeling low? Spend money on shopping, dining and drinking at expensive restaurants. It is not necessary to blow up your 2 month’s salary on the latest gadget only to change it for a new one the next year.
The secret to creating wealth is to spend within your limits. Do not be fooled by social media that makes your life look dull. Save money, avoid any money mistakes and you will realize how financial freedom is much more liberating and gratifying than living in debt. Read the Minimalist Budget BOXED SET – A Practical Guide On How To Spend Less and Live More by Simeon Lindstrom
5. Not having Health/Life Insurance
Finances are hard to manage in your 20s, thus contributing to health or life insurance is not on your priority list right now. However, it should be because you do not know what the future holds. A common financial mistake that people in their 20s make is assuming insurance to be a waste of money. Well, it is better to pay for a little extra than paying for a huge medical bill.
Insurances protect and hold account of your finances, health, and well-being of your family. Do not live without insurance and add risks and financial stress to your life.
Thus, take early-term insurance that will lead to low premiums as compared to taking it when you are in your 30s.
6. No Savings Account
Millennials believe in living in the moment and thus making the most common financial mistake of spending all their earnings and not saving any for the future. People in their 20s have a preconceived notion – that to have a savings account- one must have enough money and a big paying job.
However, that is where you are making the biggest financial mistake of your life. Whether you have only $5 or $5000, a savings account is a must. Because it acts as a money buffer in case of emergencies. Every month save a little because sometimes a small amount of money can make a huge difference. In case you lose your job, your savings will help you survive through your necessities.
7. Avoiding Investments
Having life goals is good future planning but without any savings or passive income coming in – how do you plan on achieving those goals? Making investments in your 20s will benefit in the long run. This will bring in passive income without you working for it.
Invest in a mutual fund, real estate or something small. This is another way of recovering from financial mistakes that you have incurred over the years. If you seem lost and confused about how and where to invest, then it is advised to take professional help.
8. Having a Bad Credit History
Yes, using credit cards has a downside but it is also beneficial when it comes to taking a loan for multiple assets. A good credit score or history is based on how timely your payments are. Having a good credit score can build trust with banks to access loans either for a house, car, or education later on in life.
Building a credit score takes time, hence it is best to start in your 20s by practising creditworthy habits such as paying all your bills on time and avoid any financial mistakes. Do not spend over the limit on your credit card.
TIP – To achieve a higher credit score – leave a small amount of money on your card each month. It shows that you know how to use your credit card effectively. Also, avoid opening too many accounts and keep your credit utilization as low as possible.
9. Student Loan Debt – Common Financial Mistake
Many youngsters are graduating with a big pile of student loans and are in a hurry to pay it off soon. Planning to pay it off in 5 years is a good plan, however, it leaves you with no savings.
Thus, planning to take student loans should be mapped out with precision. In the fear of not being able to pay the student loan, youngsters make the biggest financial mistake by leaving their education. Hence, the purpose of taking a student loan becomes void. They lose on education and end up with debts.
Tip: To overcome financial troubles, do a part-time job and handle your finances mindfully. Plan a budget according to your capacity and you will end up saving a little on the side for yourself. Also, enough to pay the debt off monthly.
10. Spending to have a Big Fat Wedding
Getting married to your one and only is a great feeling but spending lavishly is a big financial mistake. You are creating lifetime memories and not lifetime debts. Weddings cost a lot especially if you plan to have it solely on your bank account with added loans. Thus, opt for a smaller and low-budget wedding with people that matter the most. Don’t stress about disappointing your relatives because they are not paying your bills.
Read more in the Book – How to Enjoy Your Life and Your Job
Here is the thing about Money – it makes you do things you don’t intend on doing in the first place. BE MINDFUL about how you spend your money and money won’t control you.
The majority of the people in the 20s are making common financial mistakes because they are in dire need of money. However, they do not realize that without planning a budget, having a financial road map and accumulating savings will not make their financial life any easier.
Thus, open a savings account, spend within your limit and budget, work towards your goals, create passive income and be financially free.