Your 20s are a time when you’re just branching out on your own and beginning to enjoy independence. A big part of that is learning valuable lessons about your money. These are five critical financial mistakes you should strive to avoid in your 20s.
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1- Not Saving Money
Not saving money early in life can spell disaster for your financial future. You’re probably in good shape if your parents instill in you the importance of saving from the time you’re a child. However, if you still don’t have a savings account by the time you’re in your 20s, it can hurt you beyond that age range. You should have at least one savings account and store cash within that can accrue interest. It’s also wise to have an emergency fund that gives you the ability to pay for surprise expenses. Without saving money, you might find yourself in a huge bind in the future.
2- Being Irresponsible with Credit
Having at least one credit card is wise as you build your credit score and lay the groundwork for your financial future. However, one mistake you should avoid is being irresponsible with your credit. Using your credit card to pay for items you can easily pay for with debit cards or cash and spending way more than you can afford can spell disaster. You should always stay within 30% of your total credit utilization ratio and pay your debts in full and on time. Overspending and regularly carrying a balance can spiral into significant credit card debt.
3- Not Learning How to Budget
Budgeting in your 20s is crucial. It allows you to learn how much money you have and how much you’re able to afford to pay for your regular monthly expenses and anything left over. If you don’t know how to budget, there are many apps you can use that can help you get started. However, you can figure out your monthly or weekly budget by tallying up how much you typically spend on necessities and deducting them from your earnings.
4- Not Investing
Many 20-somethings overlook the idea of investing. However, doing so is a great way to make your money work for you. It can build up over time so that you have a nice nest egg for the future. You also don’t need to be independently wealthy to start investing. While you’re still young, opening an IRA account and periodically contributing to it can help you build wealth so that you have a good amount for your eventual retirement.
5- Taking Out Loans for Large Purchases
You should avoid taking out loans for large purchases. It’s a good way to fall into a debt trap. If you have credit card debt, loan debt on top of that can be insurmountable. Instead of relying on loans, you should save up for a big purchase. Eventually, you can use your debit card to pay for the item and take relief in not falling into a vicious debt cycle.
Avoiding these financial mistakes while you’re in your 20s can help you to be responsible with your money well into the future.