In our 20s, we are often underemployed and underpaid. We may also not be that great at managing our money yet. Discover the big money mistakes that you should strive to avoid in your 20s – so you set yourself up for success in the long run.
Relying on Your Parents Too Much
We all know the trope of a young adult in their 20s and 30s living at their parents’ expense. While the trope may be cartoonish, you should not be a burden on anyone once you’ve gained the ability to make a living and support yourself. Staying reliant on your parents for too long can prevent you from developing necessary life skills such as making a living, budgeting, and taking care of everyday problems. Moving out of your parents’ house is an important milestone that will mark the true beginning of your adulthood. Once you move out, your growth will accelerate at a rapid pace, and you will grow into the independent, self-confident, and capable adult you were meant to be.
It is fine to rely on your parents in an emergency, such as a relationship breakup or unexpected financial straits. However, you should aim to get back on your feet as soon as possible – or you risk falling into lethargy and inaction. Live your life on your own terms and be free of your nagging parents. You will see the difference it makes, immediately.
If you have to live with roommates initially, that is fine and a normal part of the process. You will not live with roommates forever. As your skills and self-confidence grow, you will find a way to finance the life you want for yourself. There will come a day when you won’t have to worry about your roommates’ antics at all. They will be a mere memory.
Using Credit Cards Excessively
Many young people, once they get their hands on a credit card, indulge in reckless, excessive spending. However, remember that you will have to pay off your credit card balance every month. If you don’t make your payments in full and on time, your credit score will suffer. That will make applying for your first apartment or buying a house much more difficult as landlords and banks look closely at people’s credit scores and credit reports. Prepare for the future now by not abusing your credit card privileges.
Reckless, Large Purchases
If you weren’t born into a wealthy family, it is unadvisable to make large, unnecessary purchases that you cannot afford. The temporary glitter and glamour of a brand-new, expensive car or gadget will fade very quickly when you realize that you’re stuck with massive debt. It is important not to spend more than you can afford. Put off large purchases unless they’re necessary. If you’re buying a house or a used car, these might be more in line with your ultimate financial goals. However, indulgent spending on a luxury vacation or another item that you don’t really need in the long run is likely ill-advised.
Accruing Unproductive Debt
Similarly to the point above, going into debt for unnecessary purchases or whims is almost always a bad idea. Unless you have a rich uncle or someone willing to pay your bills, these debts will catch up with you sooner or later, without helping you move forward in life.
Keep in mind that there is such a thing as productive debt. If you have a mortgage, it at least comes with the benefit of owning your house or apartment. On the other hand, if you owe debt for a luxury vacation, no asset comes with that, obviously, and it is purely a drain on your finances, which would have been better allocated elsewhere.
Not Saving for Retirement
In our 20s, we often think that retirement is centuries away. In reality, by age 30, you’re almost halfway to retirement already. The sooner you start putting off money and investing what you can, the sooner the compound interest can start working in your favour. You need to give compound interest time to work, as it takes several years before the gains are meaningful. When you start saving for retirement in your 20s, you ensure that your starting position sets up you for a better retirement.
Ignoring Your Credit Score
Missing payments or making late payments – as well as other financial sins – can lower your credit score, which, in turn, will make it more difficult to do many important things in life, such as apply for an apartment or buy a home. Make sure you stay on top of your payments and monthly bills and don’t overspend, and you will be well on your way to building a good credit history.
A good credit history will help you out immensely when you are applying for an apartment or taking on a mortgage. You cannot do the important things in life as easily without a good credit score. If you wish to know your credit score, consider Credit Verify! Registration takes only a few minutes, and you will have access to your personal financial information plus additional features.
Lacking a Budget
If you have no idea how much money is coming in and going out, you are unlikely to stay on top of your finances. Running your life is not unlike running a business – without knowing the relevant metrics, you can’t be sure whether you’re on track to reach your goals or moving further away from them.
Pick a budget plan and stick with it consistently. In this way, you will set yourself up for success later down the road.
Lacking an Emergency Fund
We cannot always anticipate every expense that will come our way. Whether it’s a car accident or job loss, having some money saved – preferably at least three months’ living expenses – will go a long way. If you haven’t already, start building an emergency fund today. Set a little money aside each month so you’re able to cover unexpected expenses without falling deeper into debt.
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Absence of Financial Goals
Before you reach your goals, you must know what those goals are. Spend some time crafting your preferred financial future and then reverse-engineer steps to get there. Then follow those steps every day, whether it’s by adhering to a budget or building your career. Each milestone you hit will give you an indication as to whether you’re on track to reach your financial aspirations sooner rather than later.
Ignoring Your Student Loans
You may be scared to tackle your student loans. You may not even know what you owe and to whom. It’s important to take care of these details first. Once you know who your payees are and where and how to send your payments, it’s important to stay on track with your payments. Chip away at your student loans and make an effort to get your career up and running. If you need extra income, consider taking on a side hustle or a part-time job. While it may not be an ideal solution, you’re better off taking on the debt head on rather than hiding from it. If you hide from it, it will only get worse over time.
In Summary
In our 20s, many of us are struggling to get our careers off the ground. Many of us are struggling with student loan debt and the shock of having every responsibility fall on our heads for the first time. The above tips will help you avoid some of the most common pitfalls we run into during this important and formative decade of our lives. If you find yourself without cash between paydays, consider OntarioCASH. We will connect you with a lender in an instant! Apply online now.
