One of the best times financially is when you’re in your 20s – you’re likely not married, don’t have a mortgage or other obligations, and your job is probably the least demanding it will ever be. If you take advantage of this time, you’ll be very well off in the future, but if you waste this important time by making money mistakes, it could leave your finances deteriorated for years to come.
This video will cover 5 major money mistakes that you should avoid at all costs in your 20s, and how to fix those mistakes if you happen to make them.
Without further ado, let’s begin.
1. Getting into Credit Card Debt
Credit card debt is easy to rack up, hard to repay, and has one of the highest interest rates of any kind of debt. Worst of all, having credit card debt from an early age could stop you from saving money in the future, and further worsen your finances.
How to fix it
Credit card debt has a very high interest rate, which means you should pay it off more aggressively than other debt – the sooner you pay it off, the better.
When paying off credit card debt, you should pay off the card with the highest interest rate first, while still paying the minimum amount due on all other credit cards. Once you have paid that card off, move on to the one with the next highest interest rate.
2. Not Saving for Retirement
When saving for your retirement, time is your best friend. The earlier you start saving, the better.
Let’s take an example: If someone started contributing $50 a month to their retirement account at age 20, they’d have over a MILLION DOLLARS when they’re 70. In contrast, if someone started saving at 45, they would need to contribute $750 per month to get the same result. That’s 15 TIMES more money they would need to set aside every month!
How to fix it
The easiest way to fix this problem is to start investing NOW. Whether you’re 20 or 30 or older, the sooner you start investing, the better.
When you start investing, make sure to park your retirement savings in a special retirement account – like a 401k or Roth IRA. That way, you can lower your taxes and further accelerate your saving for retirement.
3. Spending Carelessly
Have you ever gone into Target looking for milk, but came out with shoes, a bag, a pair of jeans, and a t-shirt? Chances are, you’ve made some impulse purchases. And those seemingly small expenses add up.
Over time, if you stop spending so carelessly, you could end up saving a lot of money that could go to something you really care about buying.
How to fix it
To stop spending carelessly, you need to know what you’re buying when you go to a store. Make a list of what you will buy, and stick to it. No matter what, you shouldn’t buy things that are not on the list.
Alternatively, you can also add up the cost of each item, and only bring enough cash to pay for those items – no credit cards! That way, you cannot overspend.
And finally, if you do end up making impulse purchases, make sure to return all unused unnecessary items at the earliest.
4. Taking Loans for Big Purchases
When you go on a vacation, or buy a luxury handbag, you might be tempted to take a loan and take advantage of “easy” monthly payments. Don’t! Just like with credit card debt, all loans will leave you with not enough money to save or invest in the future.
How to fix it
Next time you think about taking a loan for a purchase, try saving for it instead. You can set aside a portion of your paycheck every month, and when you’re done saving, you can take that vacation or buy that product without worrying about breaking the bank.
5. Not Living Within Your Means
Imagine someone earning $3,000 a month, who is left with $1,000 after paying for essentials like rent, utilities and groceries. If they choose a lifestyle that involves eating out and partying all the time, paying for expensive gym memberships and spa treatments, etc, it will easily eat up the $1,000 and more!
This will not just impact their ability to save for the future, but would plunge them into a debt-ridden lifestyle.
How to fix it
Create a budget – outline your income, and how much you intend to spend on each category of expenses: Food, rent, entertainment, etc. Then, add up the expenses and check if they are less than your income. If they are, great. If they aren’t, then you need to reevaluate.
But the most important thing is to stick to the budget. If you don’t, then there’s no point in having one in the first place.
In conclusion, the main money mistakes you should avoid in your 20s are getting into credit card debt, not saving for retirement, spending carelessly, taking loans for big purchases, and not living within your means.
Remember to let us know which of these you found most helpful in the comments below. And thanks for watching.
Podcast: 5 Money Mistakes to avoid in Your 20s and How to Fix Them
Fun, informative and concise episodes by a 10-year old, breaking down complex financial concepts in a way that kids and beginners can understand. Episodes cover personal finance topics like saving, investing, banking, credit cards, insurance, real estate, mortgage, retirement planning, 401k, stocks, bonds, income tax, and more, and are in the form of a conversation between a cowboy (a finance novice) and his friend, a stock broker. Making finance your friend, only at Easy Peasy Finance.
A little bit about me: I have been fascinated with the world of personal finance since I was 6! I love to read personal finance books, and keep myself updated on the latest by reading various personal finance magazines. My friends often ask me questions about finance because they find it complex and intimidating. That’s what inspired me to start my YouTube channel called Easy Peasy Finance when I was 8, and this podcast 2 years later.
Want to know the biggest 5 money mistakes to avoid in your 20s, and how to fix those? Check this out.
Show notes and transcript at: https://www.easypeasyfinance.com/5-money-mistakes-to-avoid-in-your-20s-and-how-to-fix-them/