In your 20s? 8 Financial Mistakes to Avoid
Everyone should be prepared for the challenges and stages of life before they happen. However, we learn from our mistakes with every experience we have, from which comes knowledge and maturity.
And while it is impossible to avoid all the obstacles, you can always learn from the mistakes and teachings of others. We just have to be aware of what is happening around us. Learning from one’s mistakes so as not to make them again is very good, but learning from the mistakes of others so as not to make them is doubly better.
20s – Best Stage of Life
The twenties are the best stages in life. You finish college and start working, you have an income of your own and not many responsibilities. There are no children, no wife or husband, no significant health problems. It is said that when you are in your twenties you can experience different paths to find what you are passionate about without taking the world of work and personal life so seriously.
However, if you are not careful about the responsibilities and freedoms you have, you may make mistakes that will have a negative impact on your future, that is, on your 30s and 40s.
That’s why this article tells you the mistakes you should avoid in the financial realm of your life and that you’re probably already making. Don’t say no, accept it and start learning from the teachings we give you.
(1) Not having a budget
The most important point to which almost no one pays attention: the budget. It doesn’t matter how much you earn, but how you distribute and use your money. A person with high income can have bad finances and be very indebted. A middle-income person who has good finances is because he or she has financial planning.
To create a personal budget you need to write down all your income (what you earn, what you get) and all your expenses (outings, travel, insurance, gas, etc.) for the month. Based on that you will realize how much is your total expense and how much monthly budget you can allocate to each category (home, transportation, food, health, entertainment, etc.). Once you’re aware of that, you’ll know how much you can really start saving each month.
The key to having a good budget is not to exceed the limit you set to each of the categories, and for that you require discipline, to write down your expenses daily and not to overspend.
(2) Do not save
“Don’t save what’s left after you spend. Spend what’s left after you save. Most young people have little or no control over their savings. Just as money comes, it goes. Don’t get carried away by the excitement of the moment and ask yourself if the expenses you are about to make are really necessary: clothes, beers, snacks, the trip, the car, the cell phone.
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Why save? Most people save for short-term personal goals: buy something or go on a trip. However, when you start saving, it’s important to start with two things:
a) An emergency savings fund
b) A retirement savings fund
The emergency savings fund is crucial in case you lose your source of income or have an accident. This fund should cover your expenses for minimum 6 months. That is, if your monthly expenses are Rs. 10,000; your savings fund should go from Rs. 60,000.
And if you think it’s absurd to think about a retirement savings fund, then remember that – The earlier you start, the better.
Spend a certain percentage of your income on savings. There is no strict rule for saving, if you set your mind to it you can save up to 50% of your income.
(3) Spend a lot of money socializing
Almost all young people spending money on restaurants, parties, outings with friends, with a girlfriend or boyfriend, gifts, concerts, trips, etc. It’s not bad to spend on pleasant moments, but if this happens too often it means that you’re probably not saving, or you could save more than you think; plus you’ve based your happiness and your free time on activities that revolve around money. If you try other types of activities you will see that happiness can be achieved without spending too much.
(4) No credit history
Many people have the misconception that having a credit card or applying for credit is a very bad thing that only puts you in debt. That’s not true.
When people apply for a credit card or apply for personal credit, they begin to form a credit history that reflects their behavior as a debtor. If you always pay on time and make full payments you have nothing to worry about.
Why is it important to have a credit history? Building a credit history from an early age will help you in the future when you want to take out credit for a home, a car or business. When financial institutions see your history, they will realize that you are old and they will trust more to lend. And if your rating is good, they will give you better deals and interest rates.
As you can see, credit history opens the door to several credits.
(5) Failure to pay your credit card on time
There are banks that are flexible in granting credit cards to young college students or recent graduates, which is a fantastic opportunity for you to start building your credit history. However, if you don’t pay your card bills on time or only make minimum payments, you’ll start dragging debts with the bank that in the end will turn into nightmares that will keep you awake. The best thing is to always be total (make full payments) and do it on time.
Remember that a credit card is not “extra money” that you can have month after month, it is money that, after all, you will end up paying. Credit cards are recommended because they can be used for emergencies or because they offer different benefits.
The worst mistake you can have in your twenties is to start getting into debt and not trying to get out of those debts. Going into debt is a bad habit that will end up consuming and wearing you out. Hence the importance of a budget, because you will avoid spending money you do not have.
If you already have debts, we recommend ending them.
(7) Don’t educate yourself financially
If we live in a system that moves through money, the wisest thing would be to learn how money works so that we can use it to our advantage. Many individuals do not have the required financial intelligence; however, that does not mean that we have to go blank.
Surely when you’ve been to the bank, when you’ve heard about investments, loans and personal finance you’ve been left with a question mark on the face, and you even feel like you’re being seen as a fool.
It is a fact that you need to know certain financial terms to understand what they are talking about when you want to take out your credit card or hire a financial service. You will see that it is nothing of the other world if you begin to investigate little by little.
Spend about 2 hours a week educating yourself financially.
(8) Do not invest
The last mistake you can make, but not the least important is not to invest your money. Invest? That’s right, it sounds complex, but it’s not. Now there are several investment platforms that are online and with which you can start from Rs. 1000.
Investing is fundamental so that your money does not lose value over time, that is, with inflation. Now it is no longer useful to save and leave your money under the mattress or in a bank account that does not generate returns, because that money in a few years will be worth less than it is worth today.
And if you’re not convinced, we’ll tell you the best reason to start investing: to generate income without having to work.
This article has been written by Chandra Mehta.
Chandra is a seasoned banker with 35+ years of experience in banking and financial services industry. He’s a retired banker and has served as Chief Manager and Assistant Vice President in State Bank of India/or its subsidiaries. He has authored many articles on this site (allonmoney.com).