4 Money Mistakes You Must Avoid in Your 20's

Your 20’s are some of the best years of your life.

They’re also some of the most important, acting as the core foundation for adulthood.

Your 20’s are exciting years.

Leaving the education system and creating your own path is a sensational feeling.

You might be:

• Graduating from college or university

• Starting work full time

• Moving to a new location.

But, the reason things go downhill from your 20’s is because of one thing…

People lose themselves financially.

• Debt.

• Liabilities.

• Image.

• Lifestyle inflation.

Are all common, and are detrimental to your future.

Let’s look at 4 key areas that the younger generations are continuing to go wrong, and how you can get ahead.

1. Not Building An Emergency Fund

One of the biggest mistakes in your 20’s is not having an emergency fund.

An emergency fund is a pool of money that you set aside for unexpected expenses.

It can help you pay for things like…

• Car repairs

• Medical bills

• Job loss

…without having to rely on debt.

An emergency fund is beneficial as it enables you to take on risk.

When you’re young, you’re in a much better position to take on risks.

Things like starting a business, or trying different side hustles, as you have less to lose.

Only 39% of Americans can cover an unexpected $1,000 expense with their savings.

Not having an emergency fund can be costly.

If you need payday loans, or credit cards etc. you could risk falling into a never ending cycle of bad debt.

How much should you have in your emergency fund?

Experts recommend having 3–6 months’ worth of living expenses saved up.

This can vary depending on your circumstances.

For example, if you have a stable job and good health insurance, you can get away with a smaller emergency fund.

But, if you’re self-employed or work in a volatile industry, you may want to have a larger one.

2. Not Starting to Invest

Investing in your future may seem like a distant concern in your 20’s.

But, the earlier you start, the better off you’ll be, because of compound interest.

Investing helps you build wealth over time. But, it’s important to consider your goals and risk tolerance.

The sooner you start, the easier it will be.

The amount of people that will say something like “I’m too young to worry about my future” is pretty scary.

It’s why I preach to get a hold of your finances ASAP.

While investing may seem daunting, it’s over complicated, and there are many resources available to help you.

3. Falling Victim to Lifestyle Inflation

It can be tempting to spend beyond your means, especially if you have student loans or other debts.

But, living beyond your means can lead to trouble.

One of the biggest culprits that leads to overspending is credit cards.

Credit cards can be a useful tool for building credit and earning rewards, but they can also be a trap.

Only use credit cards for expenses that you can pay off in full. Otherwise, you’ll end up paying interest and fees.

Another way to avoid overspending is to track your expenses.

By keeping track of your spending, you can identify areas where you’re overspending.

There are many tools that can help you track your expenses, or you can use a simple spreadsheet.

4. Neglecting Your Credit Score

Your credit score is a measure of your creditworthiness and can have a big impact.

Your credit score determines whether to approve you for:

• Loans

• Credit cards

• Other forms of credit.

It can also affect the interest rates you’re offered.

Start building your credit history and maintaining a good credit score.

One of the easiest ways to build credit is to use a credit card. But, we must emphasise the importance of being responsible.

This means only using it for expenses you can pay off in full, and making sure to pay your bill on time.

Check your credit report regularly for errors or fraudulent activity.

You’re entitled to one free credit report each year from each of the three major CRAs.

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