If you are in your 20s, you may not be that great at managing your money yet. Not to mention that in our 20s, we are often underemployed and underpaid, even though we may have degrees from universities and diplomas from colleges. Therefore, it is particularly important to be careful with your money in your 20s. Discover several key money mistakes that you ought to avoid during your first decade of adulthood.
Using Credit Cards Indiscriminately
A credit card is not a license to spend however much you want, whenever you want. Those monthly credit card balances will accrue, and you will have to pay fees and interest on them, if you do not meet your monthly obligations. Make sure that you’re able to pay off your credit card in full each month. That will set you up for a better financial future in your 20s.
Unnecessary Large Purchases
Conspicuous consumption may make sense if you’re already well-off. However, if you’re not truly well-to-do, it may be better to avoid extravagant large purchases altogether. Unless you’re buying a car or a house, you may be setting yourself up for long-term debt and financial struggles, just so you can look good in front of your friends and family. Shallow appearances are not worth going into unaffordable debt for.
Racking Up Unproductive Debt
It’s one thing to take out a student loan or a mortgage loan, which may be necessary to upgrade your career or buy a house. It’s quite another to rack up debt for a luxurious all-included vacation that you could’ve done without or a luxurious sports car that you cannot afford.
Not Saving for Retirement
One of the biggest mistakes you can make in your 20s is not to leave anything aside for your retirement savings. While a low income and high expenses may prevent you from setting money aside temporarily, it’s important to work on that problem until you’re able to start putting money aside. Retirement might seem far away and irrelevant to your present life, but life goes on, and if you hope to reach your sixties and beyond and live a good life during those years and decades, saving for retirement is something you must start thinking about now. Don’t put it off! Life will catch up with you sooner than you may think.
One of the main reasons why starting to save early is important is because of compound interest. The compound interest will increase your savings, but only after several years. The earlier you start, the more compound interest you will enjoy by the time you reach retirement age.
Ignoring Your Credit Score
Your credit score will matter more than you might think. Whether it’s applying for your first apartment or buying a house, your credit score may make the difference between success and the opposite of success. Therefore, make sure that you know the different factors that affect your credit score and try to do the right thing. Don’t obsess about your credit score but do take it seriously. It will matter for large purchases and any loans that you might need to take out as a poor credit score can mean higher interest rates and fees or not getting approved at all.
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Lacking a Budget
A budget is crucial to spending your money wisely. If you don’t know how much you have coming in and going out, and which expenses are important and which aren’t, it will be very difficult to manage your money effectively. Come up with a budget plan or use an online app to help you out with your financial planning. Your wallet will thank you!
Lacking an Emergency Fund
When life happens, the last thing you want is to be left without the means to cover the expense. Ultimately, the only way you’re going to alleviate your debt situation or build your savings is by increasing your income or decreasing your discretionary spending.
Unexpected costs include the following:
- Unemployment
- Car repairs
- Home repairs
- Electronics replacement
It’s better to be safe than sorry. If you do run out of cash and need a quick loan, Friendly Lender could connect you with a lender in seconds.
Absence of Financial Goals
You can’t hit a target you don’t see. Decide on some financial goals now, whether it’s increasing your income or saving for a downpayment on a house. Make a list of your financial goals and attach appropriate levels of priority to each one. Then write down a step-by-step plan to achieve each of those goals.
Overly Relying on Your Parents
While your parents may be a source of love and support in your life, relying on them financially is not a good idea. Perhaps the biggest part of becoming an adult is becoming financially independent and learning to take care of your problems on your own. This doesn’t mean that you can never go to your parents for help, but you should realize that introducing money into your relationship with your parents, particularly as an adult, is likely to bring some unwanted tension.
Twenty-somethings should strive to create a stable financial situation for themselves rather than borrowing from their parents. Your parents may be already stressed about money, so help ease their minds and become self-reliant. In this way, you will not only gain their respect but, perhaps more importantly, self-respect.
If you’re still financially dependent on your parents, it’s time to end it. Get a job, get your own place, even if you have to live with roommates for a while, cook your own meals, do your own laundry, and create a budget. In this way, you will become the responsible adult that your parents want and need you to be – that, even more importantly, you need yourself to be. If an inescapable financial hardship does occur and you need their help, make sure that it’s only a one-time or a short-term request.
Ignoring Your Student Loans
If you miss your student loan payments, your credit score will decrease, which, in turn, will result in higher interest rates in the future. If your credit score is quite low, buying a house will prove quite difficult.
Know how much each loan costs, the monthly repayment amount, when it is due, and how to submit your payments. Make a plan to pay it off. Dedicate a portion of your monthly income to your student loan payments. Stay organized and disciplined, and you will soon be free of those particular shackles.
Going into Debt for a Wedding
This is an exciting time for you. You are young, in love, and getting married soon. You may be tempted to buy a tuxedo and a wedding dress, rent an expensive venue, buy expensive floral arrangements, and invite one hundred guests.
However, if your finances do not allow for such lavish expenditures, you can be stuck with thousands of dollars in debt once the honeymoon ends. You may wish to consider less expensive alternatives: celebrating the wedding in a park or a family member’s home, renting the tuxedo and the wedding dress, opting for more affordable floral arrangements, and so on.
Starting a Family without a Financial Plan
As the Harvard professor Dan Gilbert puts it, “The only symptom of empty nest syndrome is nonstop smiling.” Having children, particularly when they are young, involves financial struggle, sleep deprivation, and stress. For mothers, there is also in many cases the physical strain of pregnancy and breastfeeding. Children can turn a cheerful and loving romantic partnership into a zero-sum battle over who gets to sleep and work and who doesn’t.
Make sure that you’re financially prepared and emotionally mature before you start a family. You’ll be in for a few rocky years as a first-time parents learning to raise your kids and pay for all their expenses. More than likely, it’ll be a steep learning curve both for you and your partner, so you don’t want to be left without the means to take care of your loved ones.
In Conclusion
Your 20s are a time of uncertainty and self-discovery. You may change majors or careers more than once during that initial tumultuous decade of your adult life. Along the way, you make work at jobs that are below your potential. It is all part of the journey and the learning process. Don’t make your journey harder by making avoidable money mistakes. Take the above tips into consideration as you go through this important first decade of your adult life. If you ever run out of cash or find yourself unable to cover an important expense, Friendly Lender could connect you with a lender in a flash. Apply online now.
