Avoid These 7 Financial Mistakes in Your 20s
Managing finances and all the expenses that come with adulting doesn’t come naturally. Along the way, you’ll encounter plenty of pitfalls that can distract you from paying down debt and saving for your future. Here are 10 things you should avoid, so that you can take charge of your money and your financial security.
- Not Seeing a Brighter Tomorrow
Some financial mistakes can sneak up on you, and you don’t even know there is a problem at first. When you realize your mistake, don’t feel hopeless. No matter where you are in your financial journey, you can learn to budget smarter, build (or rebuild) credit, and save up for all your life goals. And you can start today.
- Not Investing in Yourself
Investing in yourself is not necessarily a financial decision. It is about making an effort to stay healthy, get educated, and improve your skills. With that in mind, do your research before pursuing a degree, certificate program, or even a gym membership to ensure you’ll get a good return on your investment.
- Not Controlling Your Habits
Lifestyle can be the key to your financial health. Developing good saving and spending habits will set you up for financial success. Other lifestyle habits like drinking, smoking, ordering takeout every day, or bingeing on streaming services can be expensive and lead to financial disaster. Those habits can also take a toll on your physical, mental, and financial health. Moderation is key.
- Not Creating a Budget
A budget is your road map to achieving all your financial goals. Wandering through life without a map leaves you subject to random forces like luck. Take control of your journey by mastering the 60-20-20 rule for budgeting your money. Allocate up to 60% of your paycheck to housing, transportation, groceries, healthcare, and other living expenses. At least 20% of your income should go into savings. The remaining 20% is your fun money. Spend it on restaurants, travel, entertainment, and gifts.
- Not Having an Emergency Fund
No one expects to have emergencies, but then your car breaks down or you are faced with unexpected medical bills. To avoid compounding an emergency with a financial crisis, start building a financial safety net for unexpected expenses. Experts agree that you need to save at least three to six months’ worth of expenses. To build a fund, consider automatic transfers from checking to savings – set it and forget it.
- Not Investing for Retirement
When you get your first full-time job, the last thing on your mind is retirement. Most retirees will tell you, though, that a career goes by faster than you think. You don’t want to be teetering on the brink of retirement without a significant nest egg built up. Start early and set up a tax-advantaged account like an IRA. If your employer offers a 401(k), use it. Talk to your human resources department, and make sure you’re taking advantage of all available benefits, like matching contributions.
7. Ignoring Insurance
Insurance protects you against the risks of life. When you are just starting out, it is hard to imagine you will ever need such a safety net, but you might. When you set up your budget, be sure to include the cost of insurance premiums. Health and renters insurance are essential expenses for everyone – and life insurance is vital if you have a family. Check to see whether your employer offers low-cost life or disability policies.
If You Can’t Avoid Mistakes, Learn From Them
Life lessons will always include some trial-and-error, even with financial decisions. Most mistakes you make will not be fatal, but some could have long-lasting consequences. Position yourself for accelerated growth by avoiding these big financial blunders.
