For most people when it comes to age, the twenties is a period of discovery. This includes finding out who you are, what your purpose is, understanding your family, and not forgetting the people who are around you like friends, workmates, and so on.
One of the worst statements that you can ever make is, “If only I had known then what I know now…” However, the best part about your 20s is that you can recover quickly from the inevitable mistakes you’ll make as you figure out how to make it in the real world. Change is a fact of life and as you grow older your opinions and actions will change. Just get used to it now and the lessons you learn will be easier.
10 Biggest Money Mistakes to Avoid in Your 20s and 30s
As a young person, inexperience makes it easy to make mistakes that could make your financial journey more difficult than it has to be. Today I want to take you through some of the most common money mistakes that people make in their 20 and actually 30s. Even if you are older (or younger) these tips will come in handy for anyone looking to take charge of their finances and get closer to hitting their financial goals!
Mistake #1: Living beyond your means.
This mistake commonly happens due to peer pressure among most youths. I have seen people who have just finished college, got their first job, and start living a grown-up life. The pressure to live such kind of life is indeed real and will continue to knock on your door but you don’t need to give in. Don’t live a life with an aim of keeping up with your former classmates or because you want to impress people by having the latest furniture and a well-decorated apartment. Live a life that you can afford.
To maintain your financial sanity, you need to resist the urge to spend more than you can make. Spending more than you can make is one of the quickest ways to debt. Remember, it is unwise to also spend exactly what you make each month. If you do so, you will be left with nothing to save for retirement and what I call emergency funds. If you don’t have the money to purchase the things you don’t need right away, set a goal and make a plan to save for them. This will help you develop good spending habits and can help you avoid getting into debt.
As you get started with your adult life, make a priority list of the things that you need. The bottom line is that you should learn to live by your means.
Mistake #2: Not having a budget.
For most young people, the first job right after college might be the first time you are earning an income in your life. Your 20s might also be the first time that you have monthly expenses, such as rent, transport, shopping, water, and electricity bills. The key to financial success is making sure the amount you earn is more than the cost of your monthly expenditure.
Making a budget is the best way to compare your income to your cumulative expenses and to keep yourself from spending beyond your means. It also helps you plan for certain financial goals, such as paying off your student loans early. Budgeting lets you use your money for the things that matter most to you.
When making a budget and you realize that your expenses are more than your income, look for ways to reduce them. Here you need to consider a priority list as well. If it calls for you to live in a relatively cheap place, please do.
Mistake #3: Unnecessary debts.
Many young adults are comfortably sitting in debt. Understandably, some situations might warrant you taking loans like student loans or personal loans. However, it is a wrong move to stay in debt for a long time. You should save up or look for other sources of income to settle your debt. ‘Don’t sit comfortably in debt’.
Any time you take out a loan or charge something on your credit card, you’re borrowing from the money you hope to earn in the future. Do you want to spend your money paying for something you’ve already used up and don’t get much value from anymore? You never know what changes may happen in your income, so it’s better not to mortgage your future.
The stress from debt can lead to mild or even severe health problems including ulcers, migraines, depression, and even heart attacks. The deeper you get into debt, the more likely it is that you will face health complications. Stay away from bad debts and you will enjoy financial freedom.
Mistake #4: Not investing.
One of the most common mistakes young people make is not investing their money because they think they’ll have time to do it later in life. It is said that the best time is to invest was yesterday. The next best time is today. People find the concept of investment difficult to understand or feel like you have to be well-off financially before you start.
You don’t have to have a lot of savings to start investing. You can start small. The power of compound interest is enormous. Money makes money, and then that money makes more money, and then that money makes even more money. You can consider setting up a separate savings account and move a percentage of your earnings immediately into it so that you’re not tempted to spend that amount on other things.
The real advantage of investing when you’re young is you have a long time horizon to look through the ups and downs, as well as some of the noise and volatility. The key is to start now by doing thorough research on the markets you’re planning to invest in and be patient!
Mistake #5: Failing to track your Expenses.
It’s fundamental to your financial success as an adult. If you do not track your spending, you are likely spending more than you think you are. You don’t have to examine each purchase individually as there are apps that can help you categorize your expenses. This makes it easy to adjust your spending habits as you see fit so you can reach your financial goals.
Mistake #6: Not Setting Any Financial Goals.
Remember when you were a kid and you wanted your parents to buy you something probably a video game or a doll for ladies and they used to tell you to get it yourself? The most available option was for you to start saving for the item that you wanna own one day.
Setting financial goals as a young adult is similar to setting financial goals as a kid with an allowance. Chances are, your goals are likely to be different. Instead of saving to buy say a $100 video game, you might save to buy a $125,000 house. Instead of saving up for music lessons, you might be working on paying off your student loans early. This will save you lots of hustle in the near future.
There are three types of financial goals to set. The first is short-term goals. You can achieve a short-term goal within a year. The second type is mid-term goals. These are things you can accomplish within five years. Finally, there are long-term goals. You’re likely to save for long-term goals over several years. Building up a down payment for a house is an example of a long-term goal.
The secret is starting small. Create a goal you can confidently achieve and that you can keep track of easily. For example, you might want to save $800 for a brand new TV, and you might want to buy that TV within the next two years. You can save $40 per month for the next 20 months to reach your $800 goal.
Mistake #7: Choosing money over growth.
Many young people take job offers where they are paid a very good salary, turning down positions with a lower income but much more opportunity for growth. Don’t get me wrong on this. Taking an opportunity that will drain you, even more, is not worth it. Do all your calculations before taking it and if you find it worth your time, go for it.
It is important to choose growth over money; these learning opportunities and chances for promotion are invaluable, and it is likely you will end up with a much better wage than the first job after a short amount of time. Of course, growth does not just come while you are seated, you ought to make some efforts and dedication to achieve the growth that you desire. When you get an opportunity that pays well and there is a potential for growth, take it with a smile. That is even better, right?
Mistake #8: Not learning how to cook basic meals at home.
Most young people believe and hold on to a misconception that cooking at home is too expensive and time-consuming. What they do not know is that it is easy and of more benefit as compared to taking those fast food and grabbing those takeaways. Homemade meals are usually healthier and help you save a lot of money.
Dining out once in a while may not have a negating impact on your budget. Do not turn it to several days a week. Save that money and use it to do some other important stuff.
Mistake #9: Not having friends that inspire your growth.
Simply put, you can’t progress in life if all the people you interact with are in the exact space in life as you are or behind you. This applies in all areas of life but we’re talking about finances here. If your friends are not working toward paying down debt, you also will not see the importance of it. If your friends shop at every shopping mall or a store sale, you are likely to go and buy things you don’t need. Even worse, if your friends think it is okay to make fun of you for doing the things you feel you have to progress on your path to improving your finances, then you will lose your motivation.
This doesn’t mean you should dump your best friend since elementary school because he’s or she’s irresponsible with money. It is said that you are the average of the people you spend the most time with. So diversify the people you surround yourself with. Find friends with similar financial goals at school, work, religious places, community events, etc.
Mistake #10: Not starting to save.
Learning to save as early as in your twenties will save you a lot of hustles later in the future. Most people think that the future is far and they ought not to save. Don’t be one of those people. To be honest, the only way to secure a financial future is to save as early as possible. I personally learned the art of saving when I was a toddler and I can assure you it has always been a wonderful experience and of great help to get things done whenever they come up.
Emergencies do happen and are money-draining circumstances that are unplanned. To prove your financial stability to yourself in your 20s, you should save up for emergencies. Young adults often get into debt because they haven’t planned for unexpected expenses. This is one of the most common money mistakes people make.
No matter how careful you are, unplanned expenses do show up once in a while, and having an emergency fund will help you stay away from stress and prevent you from getting into debt.
Wrapping it Up
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 investments.
You can also read numerous books to be more financially literate such as Think And Grow Rich by Napoleon Hill.
I know sometimes life can be very difficult and you could be willing to apply the above tactics but the state you are in at the moment cannot allow. I such cases, I would recommend you seek some help from 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. Remember relationships end when money gets involved, especially if you borrow and are later unable to pay them back. Be wise buddy!