6 financial mistakes you need to avoid in your 20s
If you recently graduated, you probably are feeling a mix of excitement and stress about avoiding financial mistakes. You’ve got a job…which awesome; income will be flowing in and full financial independence is now a reality.
However, you are probably feeling a bit stressed, right? You have never planned past your next exam in your life, and now mistakes, financial mistakes, have real consequences.
There are a ton of expenses that you can list off the top of your head, and if you have put significant thought into it, you probably have come to the conclusion that there will be a bunch of hidden expenses as well. This is daunting, but there’s a smart way to do everything.
Definitely be thankful that you have a job, but now is the time to start thinking about how you will budget monthly expenses while still enjoying your twenties. We’ve made a list of six financial mistakes that you’ve got to avoid, as well as the ways to bypass them.
Debt sucks, it sucks even more if you continue to pile more on
If you have student loans right now, welcome to the club. The average student leaves college with over $28,000 of that nasty thing eating away at your paycheck.
Student loans are brutal, but they’re necessary to get that degree. And it’s the degree that got you that job as well as a much higher earning potential down the road.
So let’s not dwell on student debt, instead let’s focus on not adding more debt. Bottom line, the most likely way young people add debt is through credit cards. In fact, 1 in 3 people carries over credit card debt from month to month.
You can avoid this entirely by not having the “out of sight out of mind” mentality with spending on a credit card.
Also, unless you just created the next Facebook, you have a (very) limited monthly budget. Therefore, one card will do the trick and also make it easier keeping track of spending.
Yeah, Entourage is sweet, but we’re not all Vincent Chase
In other words, we all can’t regularly ball out with our buddies, hit Vegas on a whim, and live in a mansion. You’re not “cool” because you spend a lot if you actually can’t afford it.
Let’s face it, most of us are starting off in entry-level positions with pretty low salaries. Does under 50 grand ring a bell? Well, join the average person coming out of college and their $45,000 starting salary.
Don’t get ahead of yourself, and more so your salary, when making lifestyle choices. It’s not easy, but avoiding the peer pressure and living within your income level is key. It’ll allow you to not wake up on Sunday, after going out, knowing you’re not going have to live on ramen noodles for the week.
Come to terms with how much money you have. Then have the mindset that, while you’ll make way more money in the future, you’re going to have to have a strict spending limit.
Coming up with reasons not to save
Yeah, your first job may be boring, and you’ll leave work every day dissatisfied. We all go through that, as it is the price you need to pay to get promoted.
However, don’t fall into the habit of spending your entire paycheck every two weeks to get rid of this feeling. Retail therapy, or whatever you want to call it, will only increase your morale until a hidden expense occurs and you have no money to pay for it.
This is where many young people plop the payment on a credit card and fall into debt like we were talking about earlier.
If you don’t want to take my word for it, then consider what billionaire Warren Buffet says, “Do not save what is left after spending, but spend what is left after saving.”
What’s better than 1 income? A 2nd of course
That’s right, investing your savings actually can generate a 2ndincome. When you start increasing, your savings don’t just leave it in the bank with no return. Also, definitely don’t feel like spending it frivolously is the move.
You’re going to want to invest in assets that appreciate for you rather than depreciate. Therefore, purchasing that new car…not going to do much for you considering the first year it’ll depreciate 19%.
Your best bet with that $1000 you were going to spend a month on a new car is to put it into a diversified asset pool (I’ll talk about that next). That way, if you can get a return of 4% compounding annually, you’re going to see a sweet million in the bank in 40 years.
Get the best bang for your buck…AKA diversify
You can diversify your investments a ton of ways; just make sure you do it. It’ll spread your money out and provide a great return.
The nice thing about the current climate for millennials is that we have access to the “fintech” revolution that is changing investing. There is now a reliable start-up for pretty much any type of investment you want to make, and they are charging a fraction of the price from the past.
With robo-advisers and easy to use interfaces, it’s possible to diversify without having to be an expert. With the help of these robo-advisers, you can put your money in multiple markets and not have to spend all your free time managing your accounts.
This way your money will grow but the daily list of things you have to do won’t
Don’t make the financial mistakes of not buying Life Insurance (also don’t kill us for suggesting it) 🙂
Look, we know…this is not a sexy topic, but hear us out first. Life insurance is one of those things you’ll have to buy eventually. The catch is, the longer you wait, the more expensive it gets because you’re (technically) closer to death.
Life insurance is something you need to apply for so the younger and healthier you are, the easier it is to get a cheap rate.
Also, don’t just view life insurance as a sunk cost. If you get a whole life, there will be dividends paid into it. Think of this as interest that will build over time. This chunk of money can be used for a ton of things down the line. One of which is collateral for a loan you may need.
When you start talking to a company tell them how much you want to spend and that you want some whole life. Also, get some convertible term which is cheaper and gives you the option to convert it into whole life when you have the money, so you’ll get the ‘interest’ on it.
There you have it; your financial survivors guide to your twenties.
If you avoid these financial mistakes, you’ll be in a much better place financially without much-added effort. There’s always going to be stress and uncertainty regarding your money, but don’t let this consume your life.