6 Money Mistakes To Avoid In Your 20s
Your 20s are filled with milestones and life-changing experiences. It’s a time when the things you learn start to become habits and when financial decisions can either lead you to great success or become a problem for you in the future. If you are in your 20s (or even your 30s), perhaps you can profit from some advice many people in their 40s and 50s wish they’d had as they started out.
1. Not contributing to your retirement
One of the most damaging mistakes you can make is not to contribute to your retirement as early as possible. It is easy to think that retirement is too far away and that you should be saving for more immediate goals like getting a car. But you can sock some savings away even if you earn minimum wage while in graduate school. At the very least, start saving for retirement when you land your first job.
2. Buying a car that you can afford
In reality, you may not need a car in some locations; but even if you can’t use public transportation, it isn’t necessary to buy a car that you can afford in any event. The end result: New cars depreciate in value quite rapidly the first year and yet you will pay thousands more than the sticker price when you include higher insurance premiums and the interest to be paid on a five-year loan for a new car. In most cases, it is best to buy the right car for your wallet and to drive it into the ground.
3. Not starting an emergency fund
Frequently, people find excuses why they don’t put an emergency fund together, such as, this money could be used to pay bills or to start contributing to their retirement. But it should be the first thing you do after meeting your basic needs. It is a good idea to keep at least R10k in a savings account at all times for life’s little emergencies. If you don’t start an emergency fund, you are more likely to accumulate debt.
4. Living on credit cards
Be grateful if you have not gotten deep into debt in your 20s, and avoid it like the plague. Living high on your credit cards is a dangerous game to play with your finances. At some point you have to pay for your purchases, and that usually means emptying any savings you have accumulated. If you have already depleted your savings (or never established any), you may start the cycle of missing payments and opening new credit card accounts.
5. Failing to set financial goals
If you never stop to think about what you would like to accomplish in five or 10 years, it is likely that you won’t accomplish anything by the end of that period. On the other hand, the very act of identifying and setting financial goals for yourself in your 20s clarifies your choices and helps you naturally focus on ways to reach your goals. Failing to set financial goals in your 20s can create tension later on as you realize that you have to work harder to make any sort of progress toward what you want in life.
6. Taking on student loans without learning about career prospects
Following your passion doesn’t always pay, so treat your college education as an investment that can help you build the life you want. If you don’t investigate whether your potential career is slated for fast growth and expected to have strong salary in the future, you may have a more difficult time paying back student loan debt. Student loans are a very tenacious form of debt. Even if you don’t finish your degree, in most cases you must still repay your student loans – and it could take years if you can’t find a good-paying job.
